Insurers set sights on growth in Medicare Advantage, Medicaid managed care

As the COVID-19 pandemic continues to wreak economic havoc, an increasing number of states are contracting with Medicaid managed-care companies. The operating theory is that privatizing services for the lowest-income population will add more predictability to state budgets and lower overall healthcare costs.

But those considerations come at a risk, providers say, fearing that the trend will lead to lower reimbursement rates and higher administrative costs.

Tension between the two groups came to a head in Oklahoma, where the medical association filed an injunction in February to stop the privatization of the state’s $2 billion Medicaid program. With the pandemic raging, and Medicaid expansion set to start in July, Shasta Manuel, regional vice president of SSM Healthcare in Oklahoma, said now is not the time to privatize a program that’s a bright spot in the state’s embattled health record.

“I’m not saying that there’s not a budget crisis. I’m not saying that maybe, in the end, this isn’t a great thing,” Manuel said. “I would just ask for someone to prove that managed Medicaid really will do what they say it will do without significantly impacting access to healthcare in Oklahoma.”

Aetna has also gotten into the fight, filing a formal protest over the bidding process. It was one of seven insurers that responded to the state’s request for proposals, but it was not awarded a contract.

Even as they vie for this line of business, the growth opportunity could be bittersweet for insurers, since larger Medicaid numbers often translates to a decline in commercial enrollees.

“They’re just making less money off of each of these enrollees that shift,” said Brad Ellis, senior director of insurance at Fitch Ratings.

To fill that gap, he said, companies will continue to bolster services for their Medicare Advantage enrollees, a business that has been ballooning as baby boomers age.

Over the past few years, the number of people enrolled in Medicare Advantage has exploded, thanks to an aging population that prefers the extra benefits not offered in traditional Medicare and who are familiar with being in a limited network managed by an insurer. The latest federal data show that 26.4 million people were in Advantage plans as of January, up 41.4% from 2017. During that same time, the number of those eligible for Advantage plans rose 10.3%.

As enrollment grows, the gross profitability of Medicare Advantage has exceeded all other business lines for insurers. A Kaiser Family Foundation analysis in December 2020 found that, over the past three years, insurers pocketed an average of $200 per Medicare Advantage member, the highest amount across all care populations. To that end, during the company’s most recent fourth-quarter earnings call, Molina Healthcare CEO Joe Zubretsky said he plans to focus on acquiring more Medicare Advantage plans this year to drive growth.

“We’re really good at high acuity,” Zubretsky said. “There’s a lot of players out there that have a lot of high-acuity lives and have little ability to manage them.”

Meanwhile, Medicaid expansion under the Affordable Care Act has driven demand for managed-care services increasing at a similar clip. The most recent federal data found that 53.9 million people are enrolled in Medicaid managed-care plans. And, “since most states contract with private managed-care organizations to provide benefits to their Medicaid enrollee populations, this has created growth opportunities for private insurers,” said Jean Abraham, Wegmiller Professor of Healthcare Administration at the University of Minnesota.

The pandemic has accelerated officials’ interest in Medicaid managed care. As more people are laid off and lose commercial insurance, individuals naturally shift to coverage under Medicaid, and the rapid enrollment expansion has increased care costs for states managing this population.

Last year, the Kaiser Family Foundation found that gross margins peaked for payers involved in the Medicaid managed-care markets to $71 per member, more than double what it was in 2019. In 2020, Oklahoma and Missouri decided to privatize their Medicaid systems. UnitedHealthcare won contracts in both states. In 2021, the insurer expects to add up to 300,000 Medicaid members, bringing its total government enrollment under the program to 6.9 million.

“It’s a focus for us, and it’s a focus for our state partners,” said Brian Thompson, CEO of government programs at UnitedHealthcare.

As the number of government customers grows and the pandemic rages on, insurers are investing in services that meet their new enrollees where they’re at.

At UnitedHealthcare, Thompson said he’s focused on ramping up telehealth, remote-monitoring and social determinants screening services. The company’s Navigate4Me digital assistant platform now counts more than 1 million Medicare Advantage and Medicaid enrollees, Thompson said, and the insurer aims to expand enrollment to more government members in 2021. He hopes Navigate4Me will empower more members to take control of their health—even if it’s virtually.

Last year, UnitedHealthcare also paid an undisclosed sum to acquire Vivify, a remote-monitoring platform that Thompson said will be critical for helping patients with chronic conditions manage their disease at home. This year, UnitedHealthcare wants to have every Advantage member receive at least one in-person home visit with their primary-care provider, up from the 1.7 million home visits the company conducted across its 5.7 million Medicare Advantage members in 2020. The insurer’s Advantage business has experienced a 13% compounded growth rate over the last five years and the company expects to add 900,000 new members to these rolls this year.

As demand for Medicare Advantage and Medicaid grows, Thompson is focused on scaling services that support both populations, particularly those encouraging members to see their providers. Thompson said promoting utilization represented the largest challenge UnitedHealthcare faces this year.

“We already participate in a large-scale way in long-term care today,” Thompson said. “But what I’ve enjoyed from my seat is really bringing our senior-care and our long-term care capabilities together and getting the best practices out of both.”

The push to provide additional in-home, personal health services for their government population has also led insurers to focus on addressing the social determinants of health. For some, it’s even a growth area. Martin Esquivel, vice president of product management at Anthem, said the insurer’s transportation, nutrition and fitness device benefits are helping to drive growth in its Medicare Advantage plans.

At UnitedHealthcare, the growth in its government-sponsored population has also coincided with an increase in its value-based relationships—particularly for UnitedHealth Group’s OptumCare subsidiary, which serves many of UnitedHealthcare’s Medicare Advantage and Medicaid members.

During its most recent fourth-quarter earnings call, UnitedHealth Group said about 66% of its OptumCare physician facilities are in risk-bearing relationships, with 3.4 million members enrolled in some type of value-based care program. Less than half of those are involved in global capitation relationships. By acquiring more physicians’ offices and moving them to capitated relationships, OptumCare aims to generate double-digit revenue growth this year.

“Not all physicians’ offices are created equal or at the same place in the continuum of taking on risk,” Thompson said. “But generally speaking, our goal and ambition is to drive alignment around quality and engagement and wellness. We find we’re able to be most efficient when we establish value-based contracts with our partners.”

The push to value-based care can also lead to complications with providers.

In January, the Oklahoma Health Care Authority announced UnitedHealthcare would be one of four private insurers in charge of managing Medicaid benefits for the state’s 903,000 enrollees, starting in October. Under the state’s new managed-care program, named SoonerSelect, Oklahoma’s Medicaid will move from a traditional, fee-for-service model to one in which organizations receive fixed monthly payments for every patient its providers see and treat.

This represents the second time the state has attempted to privatize its Medicaid system.

In 1993, Oklahoma contracted with five managed-care organizations to administer coverage for its lower-income population, intending to stabilize the program’s rising costs and improve care quality. But a decade later, an economic downturn led to reduced state revenue and increased Medicaid enrollment. At the same time, private insurers pressed for higher capitated payments. In 2003, the state health authority decided it could manage the program by itself for a lower cost, ended its contracts with private insurers and switched back to a fee-for-service model. A state-sponsored review of the private Medicaid program found that managed-care organizations helped expand access and lower the cost of care. But it listed several other policy shifts that could have impacted care costs during this time.

Now the state is reversing the decision.

Dr. George Monks, president of the Oklahoma State Medical Association, said that privatizing the state’s Medicaid program will increase costs and decrease access to providers for rural patients. Payment delays in the 1990s caused a record number of health systems to stop accepting Medicaid patients, he said.

Monks, who runs a dermatology practice and does not personally accept Medicaid patients, added that the Oklahoma Health Care Authority’s administrative costs currently run at 5%, while administrative expenses at managed-care companies in other states reach at least 15%. He also takes issue with the fact that regulators moved forward without the Legislature’s approval.

“Commercial managed care really just injects a middleman into the Medicaid program, and it’s going to ultimately cost the state and taxpayers more,” Monks said.

He pointed to a recent Government Accountability Office report that found managed-care organizations in six states inappropriately cut patient services, limited patient access to providers and suffered from quality issues.

Other reports offer a different picture: UnitedHealth Group highlighted an analysis of Kansas’ managed-care efforts, which found that utilization of primary care increased 45%, beneficiaries gained access to $18 million in new services and the state saved $2 billion in the first six years after its managed-care program was implemented. The report was conducted by Medicaid Health Plans of America.

At SSM, Manuel said she is still worried about how the move will impact the hospital’s finances. She said Oklahoma’s health authority told her to expect patient utilization to drop by up to 40% once private insurers begin to manage Medicaid. The change will also impact the hospital’s 340B drug-pricing system and its upper payment limit program.

Uncertainty over the new Medicaid administration and program expansion comes as the hospital continues to deal with COVID-19 and how to manage its Medicare Advantage contracts, Manuel said. As more insurers offer more plans, the number of enrollees in each decreases, Manuel said, diluting the risk pool and making it harder for SSM to achieve the cost savings and patient outcomes needed to make financial sense.

“We’re looking at this managed Medicaid law going into effect rather rapidly, and there’s a lot of things that are kind of just left out there,” Manuel said. “What’s going to happen in between then and now? I feel like the plane’s being built as it’s flying.”


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