Good News for Medicare Advantage

Aetna CEO Mark Bertolini was interviewed today on CNBC and offered a number of important insights about Medicare Advantage.

First, overall Medicare Advantage enrollment for 2014 rose more than anyone expected. 

Next Bertolini suggested that Medicare Advantage is now “too big” for the federales to shut down.  Nearly 30% of all Medicare-eligible seniors today have elected to buy a private Medicare Advantage policy rather than enroll in traditional Medicare.  That’s around 14 million people.   Bertolini also said that today's employees are increasingly willing to sign up for Medicare Advantage when they reach age 65, because they have had years in which to become familiar with managed care.  I think that means enrollment growth in Medicare Advantage is likely to accelerate over the next few years; an accelerating trend would of course be compounded as more “boomers” retire.

CMS pays private insurers to take over the risk for each senior who enrolls for Medicare Advantage.  At one time, the average CMS payment was 114% of the cost for traditional Medicare enrollees. These higher payments were partly because of risk-adjusters in the CMS payment formula – and partly because Medicare Advantage provides better coverage than traditional Medicare.  However – and this is important information – Bertolini said the average government payment to Medicare Advantage insurers is now down to 106%, and is “headed to zero.”  

In other words, private Medicare Advantage insurers believe they have figured out how to provide better benefits and better service than traditional Medicare, for the same cost. That's big.

It's big because it would bring good news all around: CMS will shed even more traditional Medicare risk – and cost – thus reducing its financial strain; private insurers will pick up even more Medicare Advantage enrollment on a profitable basis even when paid the same as the cost of traditional Medicare; the taxpayers will benefit if there is reduced need for higher taxes to support traditional Medicare; and seniors who prefer Medicare Advantage over traditional Medicare will still have that highly popular option available to them.