Medicare Advantage Plans and Medicare Secondary Payer (Part 5)

Rafael Gonzalez, Esq. Cattie & Gonzalez, PLLC

If you have been paying attention to Medicare Secondary Payer issues over the last decade, then you know that Medicare Advantage reimbursement of conditional payments has been and continues to be a significant issue for primary payers in liability, no-fault, and workers compensation cases. At one point, federal courts had determined that Medicare Advantage plans were not entitled to use the Medicare Secondary Payer Act to seek reimbursement of conditional payments, but had to instead seek such recoveries at the state level based on contractual language found within each policy. That all changed in 2012 when the United States Court of Appeals for the 3rd?Circuit ruled that Medicare Advantage plans were in fact allowed to use the MSP Act to seek reimbursement of conditional payments, including seeking double damages when primary payers refused to pay back such conditional payments forcing the Advantage plan to seek legal remedy in court.

Fast forward a decade later and today Medicare Advantage conditional payments are front and center, or should be, in the MSP compliance program of every primary payer in the country. With numerous United States District Courts and several United States Court of Appeals agreeing, and with the PAID Act becoming law in December 2020, and thereafter becoming effective in December 2021, there is no longer a void in the identification of Advantage plans that may have made payments related to the liability, no-fault, or workers compensation claim, entitling them to reimbursement pursuant to the MSP Act.

Perhaps not as top of mind for most primary payers, but certainly a concern for those of us who work with MSP issues on a daily basis, is the extension of supplemental benefits or “extra benefits” such as vision, fitness, telehealth, hearing or dental benefits to the items covered by Advantage plans that are generally not available in the traditional Medicare program. As Medicare Advantage plans continue to increase their offerings to include meals, transportation, acupuncture, chiropractic, in-home support, and enrollee caregiver support services, will these extended benefits make their way to the traditional Medicare program and become reimbursable conditional payments and an expected component of the Medicare Set Aside program when taking Medicare’s future interests into consideration when settling future medical needs associated with a liability, no-fault, or workers compensation claim?

I have been talking and writing about it for more than 20 years- the privatization of Medicare. Twenty years ago, it seemed an impossible task, but over the last decade, Medicare Advantage, the private plan alternative to traditional Medicare, has taken on a more prominent role in the Medicare program. In 2022, more than 28 million Medicare beneficiaries were enrolled in a Medicare Advantage plan, nearly half of the total Medicare population. How did this happen, and why is it still going on? Why would half of the Medicare population bypass the traditional Medicare system and instead go to private group health insurance companies to obtain their Medicare coverage?

Over the next several weeks, I will be discussing various components of why this phenomenon has occurred and is predicted to continue for the foreseeable future. As always, I use Kaiser Family Foundation (KFF) studies, analysis, statistics, research, and published articles as my source for all numbers mentioned and discussed throughout. Today we focus on gross margin per enrollee and medical loss ratios in the individual, group, Medicaid managed care, and Medicare Advantage insurer market.

Despite Covid, Medicare Advantage At Highest Gross Margin

Undeniably, the Covid pandemic disrupted longstanding trends in employment, health, spending, and utilization. These created challenges?for insurers to accurately predict their costs and set premiums. In the early months of 2020, use of health services dropped sharply, as elective procedures were canceled, and many people delayed?or went without care due to concerns of contracting COVID.?

Although 2022 and 2023 numbers are not yet available, here, we examine how insurance markets performed in 2021, the most recent year with annual data reported by insurance companies to the National Association of Insurance Commissioners (NAIC) and compiled by Mark Farrah Associates to look at medical loss ratios and gross margins in the Medicare Advantage, Medicaid managed care, individual (non-group), and fully insured group (employer) health insurance markets through the end of each year.?

It is clear from these numbers that by the end of 2021, gross margins per enrollee had returned to pre-pandemic levels in the Medicare Advantage market, while gross margins in the individual and group markets were lower than pre-pandemic levels and Medicaid margins were higher than pre-pandemic levels. Medicare Advantage plans have far higher per person gross margins—more than double those seen in other markets.

A Comparison of Gross Margins Among All Types of Health Insurers

One way to assess an insurer’s financial performance is to examine per enrollee gross margins, or the amount by which total premium income exceeds total claims costs per enrollee per year. Gross margins are an indicator of financial performance. However, positive margins do not necessarily translate into profitability since they do not account for administrative expenses or tax liabilities. While gross margins are not equivalent to profitability in absolute terms, changes in gross margins can be indicative of changes in profitability (assuming administrative costs and tax liability are similar).

Through the end of 2021, gross margins in the Medicare Advantage market averaged $1,730 per enrollee, similar to levels seen in 2018 and 2019 before the pandemic began. In 2021, gross margins for Medicare Advantage plans were substantially higher than those seen in the individual ($745 per enrollee), fully insured group ($689 per enrollee), and Medicaid managed care ($768 per enrollee) markets.

Among fully insured group plans, gross margins were 17% lower in 2021 than in 2019. Individual market gross margins were 36% lower in 2021 than in 2019. On average, gross margins in the Medicaid managed care market were higher in 2021 than they were pre-pandemic. Five publicly traded for-profit firms account for half of all Medicaid managed care organization (MCO) enrollment. Earnings reports from?2021 show continued year-over-year growth in enrollment and Medicaid revenues.

A Comparison of Medical Loss Ratios Among All Types of Health Insurers

Another way to assess insurer financial performance is to look at medical loss ratios, or the percent of premium income that insurers pay out in the form of medical claims. Generally, lower medical loss ratios mean that insurers have more income remaining after paying medical costs to use for administrative costs or keep as profits. Each health insurance market has different administrative needs and costs, so lower medical loss ratios in one market do not necessarily mean that market is more profitable than another market. However, in a given market, if administrative costs hold mostly constant from one year to the next, a change in medical loss ratios could imply a change in profitability.

Medical loss ratios are used in state and federal insurance regulation in a variety of ways. In the commercial insurance (individual and group) markets, insurers must issue rebates to individuals and businesses if their loss ratios fail to reach minimum standards set by the ACA. Medicare Advantage insurers are required?to report loss ratios at the contract level; they are also required to issue rebates to the federal government if their MLRs fall short of required levels and are subject to additional penalties if they fail to meet loss ratio requirements for multiple consecutive years. For Medicaid MCOs, CMS requires states to develop capitation rates for Medicaid to achieve an MLR of at least 85%. There is no federal requirement for Medicaid plans to pay remittances if they fail to meet their MLR threshold, but a majority of states?that contract with MCOs require remittances in at least some cases.

In 2021, loss ratios were similar across all markets. Simple loss ratios were 87% in the Medicare Advantage market, 88% in both the individual and fully insured group markets, and 86% in the Medicaid managed care market. However, because each market has different administrative needs and costs, this does not imply that the markets are similar to each other in profitability.

Rather, looking at changes in the direction of loss ratios may be a better indication of changes in profitability in a given market. Relative to 2019, average loss ratios in the Medicaid managed care market remain lower (implying increased profitability), while average loss ratios in the group and Medicare Advantage markets were somewhat higher than pre-pandemic levels. Individual market loss ratios in 2021 are substantially higher than those seen in the years leading up to the pandemic.?

About Rafael Gonzalez?

Rafael earned his Bachelors of Science degree from the University of Florida, and his Jurisprudence Doctorate degree from the Florida State University.?

Rafael has over 35 years experience in the legal and insurance industries. He is currently a partner in Cattie & Gonzalez, PLLC, a national law firm serving clients in all 50 states, focused on Medicare and Medicaid secondary payer law and compliance in auto, bodily injury, liability, mass tort, medical malpractice, nursing home, no-fault, products, workers compensation, and wrongful death claims and litigated cases.?

Rafael writes and speaks about workers compensation, social security, medicare, medicaid, marketplace, mandatory insurer reporting, conditional payments resolution, set aside allocations, msa and snt administration, social determinants of health, and diversity, equity, and inclusion throughout the country.?

Rafael can be reached at 844.546.3500 or at [email protected]. You may also reach out to him on social media, as he is active on linkedin, twitter, facebook, instagram, and youtube.?