Medicare Advantage leader eyes 50 percent penetration — but when?

Evaluating UnitedHealth’s Managed Medicare Prediction

Among the key takeaways from UnitedHealth Group’s first quarter earnings call was a prediction that the market penetration of managed Medicare plans will reach 50 percent, up from roughly one-third today.

This is at least the second time in the past year that a UnitedHealth official has staked that claim, but without offering a particular timeline for its occurrence. CEO David Wichmann was especially circumspect about how soon half of American seniors will choose an insurer-managed Medicare plan over traditional benefits on UnitedHealth’s second quarter 2017 earnings call. Brian Thompson, CEO of the insurer’s Medicare and retirement division, went a bit further in April.

“The Medicare Advantage market continues to be severely underpenetrated,” Thompson said. “We see a path … to over 50 percent over the next 5 to 10 years.”

When you consider that it took 8 years for Medicare Advantage enrollment to grow 10 percentage points, from 25 percent in 2010 to 35 percent today, Thompson’s claim that it will grow another 15 percentage points as soon as 2023 may sound overly aggressive.

But the long-term trend masks rapidly accelerating Medicare Advantage enrollment growth in more recent years as carriers, especially UnitedHealth and Aetna, have prioritized their stable managed Medicare business amidst turmoil in the commercial and Medicaid markets. A model developed by Decision Resources Group to forecast managed Medicare enrollment nationwide squares with Thompson’s prediction and projects the 50-percent milestone will be reached by 2026.

DRG’s model was accurate within 1 percent at predicting nationwide managed Medicare enrollment for 2018. Of course, several factors — e.g., shifting demographics and legislation — could drastically alter the trend and makes forecasting eight years out an inherently inexact exercise.

Insurers’ heightened emphasis on Medicare Advantage is among the factors that could put upward pressure on growth and bring about the 50-percent milestone earlier than currently expected. Four of the nation’s top seven Medicare Advantage carriers grew their managed Medicare enrollment more than the national average of 45 percent from July 2012 to July 2017, according to DRG’s Managed Market Surveyor. UnitedHealth’s managed Medicare enrollment grew 75 percent, and Aetna’s jumped a whopping 237 percent.

While these and most other known dynamics suggest a bullish trend, there is one big unknown that could have a chilling effect: whether there is a saturation point at which carriers’ attempts to grow Medicare Advantage enrollment will meet with diminishing returns. While Thompson characterized the market as “severely underpenetrated,” DRG has identified 10 states and 21 large metropolitan markets where managed Medicare growth rates have started — and are forecasted to continue — slowing. The 10 states have an average Medicare Advantage penetration rate of 37 percent, just above the current national average. In the markets where growth is slowing, the average penetration rate stands at an average of 39 percent, compared to 37 percent for all urban counties in the U.S.

Carriers are employing a number of different strategies in hopes of keeping the momentum going. UnitedHealth has grown its leading managed Medicare market share to 24 percent nationally by keeping benefits, premiums, networks, and pharmacies as stable as possible to enhance retention.

At 8 percent, Aetna is middle-of-the-pack in managed Medicare market share nationally, but is growing that enrollment much more aggressively than any other top carrier. Aetna Medicare Advantage plans expanded into 128 new counties in 2018, and the insurer is launching a portable option that could win over some holdouts who have stuck with traditional Medicare to ensure stable benefits while traveling. Going forward, Aetna plans to continue its geographic expansions and to work toward offering more 4.5- and 5-Star plans by creating joint venture MA products with health systems. Aetna’s proposed merger with CVS also could provide a boost with CVS retail locations serving as convenient and low-cost providers of care management.

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Brandon Gee is a senior analyst at DRG with expertise in Medicare Advantage.

Follow Brandon on Twitter @bsgeeDRG.