What Medicare Advantage and Accountable Care Organizations Mean for Medicare in 2024
As we move full speed into 2024, the healthcare sector continues to evolve rapidly, especially - in the context of Medicare - Medicare Advantage (MA), Accountable Care Organizations (ACOs). National Health Expenditure (NHE) in the US grew 4.1% to $4.5 trillion in 2022, or $13,493 per person, and accounted for 17.3% of the GDP. Medicare spending grew at a meaningfully higher rate - 5.9% - to $944 billion in 2022, representing 21% of total NHE. Medicare spending is projected to reach $2 trillion by 2032, and somewhere around ~$20,000 per beneficiary. Amidst the dazzling headline figures, here are the ground trends to monitor for 2024.
Medicare's Successes and Challenges: What's Working and What Isn't?
People with Medicare are generally more satisfied with their health insurance coverage than adults with other types of insurance. 77% of older adults in Medicare reported being "very" or "somewhat" satisfied with their insurance, higher than the rates for employer-sponsored insurance. Despite high satisfaction levels, particularly for MA (some studies show as high as 95% satisfaction rates), there is strong bipartisan support for CMS to increase oversight of prior authorizations requirements and denials in the program. 30 U.S. representatives recently wrote to CMS Administrator Chiquita Brooks-LaSure, asking the agency to require MA plans to report prior authorization data, including reasons for denials. Another separate issue found Medicare loses upwards of ~$60 billion each year due to fraud, errors, and abuse. Despite Medicare coverage, many beneficiaries face high out-of-pocket expenses - their average out-of-pocket spending on healthcare was around 41% of the average Social Security income (including premiums, deductibles, and out of pocket expenses).
Medicare Advantage Now Represents >50% of Total Medicare Enrollment
MA offers a value-based care alternative to original Medicare through private plans such as HMOs or PPOs, including additional benefits like dental and vision. New data and earnings reports from large health plans paint mixed signals for insurers. Given the value-based care and risk shift associated with MA plans, rising cost trends can mean insurers are becoming less profitable, which impacts investment in the space. MA plans are already subject to Medical Loss Ratio (MLR) regulations that cap profits by requiring at least 85% of revenue to be spent on medical expenses and healthcare quality improvements, leaving only 15% for administrative costs and profits. Failure to meet this threshold mandates rebates to the federal government, thereby limiting MA plan profits. From the health system perspective, slow payments, denials, and overall losses are resulting in health systems dropping MA plans altogether.
Looking to Accountable Care Organizations:
ACOs are groups of doctors, hospitals, and other healthcare providers that come together voluntarily to deliver coordinated, high-quality care, particularly to Medicare beneficiaries. This model emphasizes patient-centric care, leading to improved outcomes and cost efficiency by better managing chronic conditions and focusing on prevention. ACOs benefit from shared savings, creating financial incentives tied to health outcomes.
Public policy is increasingly favoring ACOs and other value-based care arrangements. Recent policies further encourage the development of specialized care companies, such as those focusing on chronic kidney disease by allowing nephrologists to take on risk. Additionally, the ACO Reach initiative and government policies are promoting the adoption of risk models by private payers and expanding the patient base, effectively doubling the market for risk-based healthcare businesses. This broadened appeal underscores the government's role in shaping healthcare's future towards more risk-bearing, value-focused practices.
Key Areas to Watch in 2024
Technology Brokerages and Data-Driven Brokerage: Increasingly we are seeing startups leveraging technology, including sophisticated data analysis and AI, to match members with the most suitable Medicare and MA insurance plans. They often charge a blended rate for plan selection or renewal. Given the constant changes and regional variations to plans, there are an estimated 13,600 - 24,000 permutations of Medicare plans / options for consumers. With such a broad mapping to insurance plans and a network of independent brokers, unbiased technology models can be built to more effectively monitor legislative changes and make AI based matching for plan beneficiaries.
ACO and ACO Reach Software: These platforms support ACOs by leveraging commercial partnerships and monetizing a percentage of capitated payments earned by providers, exploring the efficiency of federal Medicare programs in administering capitated programs.
Specialized Niche Plans: Focused on developing and managing Dual Special Needs Plans (D-SNPs) in partnership with regional health plans and hospital systems, these plans address specific gaps in the market, aiming to expand and enhance D-SNP offerings. There is a gap that large national plans simply don’t have the appetite or knowhow to fulfill.
Fraud Prevention and Monitoring Tools: Addressing a significant challenge in healthcare, these tools combat various forms of fraud, including false billing and identity theft, highlighting the financial impact and the need for robust prevention strategies in the industry.
