Medicare Advantage market: Not Dead Yet

I previously had posted that the Medicare Advantage (MA) HMO plans were the only ones likely to survive the 3.5%-4.5% cut in Medicare reimbursement from the federal government. From looking at the Pacific Northwest enrollment results from the Annual Election Period, it looks like the overall MA program is more resilient than I had thought. For background, Medicare Advantage is a program where the government contracts with private insurance companies to offer Medicare. The program has been down around for a few decades but payments to insurance companies were increased in 2006 to attract more participants. Obama likes to call these examples of programs that don't work so funds have been cut. When I hear that, I have to stifle the urge to tell Obama that his momma don't work right either but that never stopped me. I don't say that because I'm worried that Rahm Emanuel will find me.

Digressions about momma jokes and chief of staffs going medieval on me aside, Medicare Advantage enrollment in the Pacific Northwest grew 2% since last January despite average premium increases of 25% and benefit reductions. A PPO plan in Oregon increased its price from $121 to $176, reduced benefits, and gained market share. Another Oregon PPO plan tripled its price to $230 and only lost 50 members. Most HMO plans only had slight price increases and gained the most market share.

With a 25% increase in price, reduction in benefits, and examples that I described above, most did not initially expect the Medicare Advantage market to grow. I even changed my forecasting models to predict a 10% decrease in enrollment. As a result, my best job forecasting to date is still last year's NCAA college basketball tournament bracket where I predicted a North Carolina-Michigan State final. However, I predicted that Michigan State would win and lost the pool to someone's second grader.

This indicates that 1) Medicare beneficiaries still see the value in Medicare Advantage and consider it one of the better options and 2) Medicare Advantage plans were underpriced. With the second point, a 65 year old pays $110 Part B premium + $176 PPO plan above for a total of $286 per month. However, their plan has no deductible, the 65 year old pays $50 to go to the Emergency Room, nothing for an outpatient surgery or CAT scan, $10 to go to the doctor. A similar plan on the open market would probably cost $500 for a 30 year old.

It still remains to be seen if the Medicare Advantage market will survive planned 2011 reductions as well as future cuts. The growth in the market despite the 2010 reductions shows how the public values the program and it probably did not need all of the money from the federal government to remain attractive. These reductions will continue to be the seniors contribution towards health care reform. Given my forecasting skills, I am going to continue to predict doom and gloom for the Medicare Advantage in hopes that I am completely wrong again. I will also share my future NCAA college basketball brackets.