As US population ages, private insurers reap more money from government-run Medicare
Private insurers benefit from the federal government's high spending on the elderly - with the demand for the COVID-19 pandemic leading to more robust offers.
Following a growing trend in recent years, both Cigna (CI) and United Health Group (UNH) announced an expansion of their Medicare Advantage plans for 2021 - with Cigna expanding in 67 counties and UnitedHealth in 300 counties.
In addition, Walmart (WMT) has partnered with its own insurance education services to help seniors enroll for Medicare plans.
The two health insurance giants are expanding in an increasingly competitive market dominated by players like Humana (HUM) and Centene (CNC). You are also seeing a wave of startups including Clover Health, Oscar, and Bright Health.
According to Brian Evanko, Cigna's president of government affairs, insurers are facing a convergence of factors including a willing government payer, an increasingly aging population, and the flexibility to compete with robust offerings.
Many plans have $ 0 in premiums - a major selling point - and thanks to the popularity of telehealth during the pandemic, both insurers are offering $ 0 copays on telemedicine visits. Cigna is now also offering behavioral health virtual visits, while UnitedHealth has promoted the $ 35 cap on insulin.
For Cigna, which has traditionally been a major player in commercial and employer-sponsored plans, the expansion is the largest in this space. The total number of counties, 369 in 2021, represents 30% of the US Medicare market, up 22% year over year, Evanko said. The company is aiming for a market share of 50% by 2024.
Companies like Cigna will continue to shift their resources and efforts to the Medicare Advantage market as continued support from both parties drives growth. It's a captive pipeline, said Evanko.
"There are 14 million commercial members who will age in Medicare in the years to come," he said, adding that Medicare Supplement and Part-D participants will eventually migrate to Medicare Advantage as well.
"Significant growth opportunity"
SARASOTA, FLORIDA - JANUARY 4: Charles Miller, 90, prepares the daily pills his wife will need for the week on January 4, 2020 in Sarasota, Florida. His wife recently had a stroke and a heart attack and is on about ten different medications each day, which must be carefully monitored. (Photo by Andrew Lichtenstein / Corbis via Getty Images)
As the ledger book has grown in recent years, it has questioned how long insurers can expect to continue to benefit from government funding.
According to the Kaiser Family Foundation, gross margins for Medicare Advantage plans averaged $ 1,608 per insured per year between 2016 and 2018 - about twice the average annual gross margins for plans in the individual and group markets ( $ 779 and $ 855 per year) member per year. "
The Medicare Advantage concept is that a monthly sum is paid for the care of a specific patient population. It's similar to building value-based payment models on the commercial side, which also received a boost during the COVID-19 crisis.
To this end, Humana recently announced that savings have been made by implementing value-based relationships with doctors rather than traditional fees for services. This type of innovation enables companies, in cooperation with the federal government, to assert themselves well, according to Evanko.
"Medicare Advantage represents a significant growth opportunity for Cigna," he said. "We expect an annual growth of 10-15%."
The expected rate of growth is no surprise as insurers have benefited from the segment at a rate far higher than commercial plans.
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