Strong Medicare Advantage Returns Help NY Health Plans, Says Report

Most commercial health plans in New York maintained profits in 2008 despite the onset of the recession because they were buttressed by strong Medicare Advantage returns, according to a new United Health Fund report.

Those strong returns could soon be threatened though. United Health Fund said there may be a "rough road ahead" in Medicare Advantage, with possible major cuts to the program under healthcare reform, adding its fee-for-service plans may "wither on the vine."

United Health Fund officials also noted a continued decline in enrollment in commercial markets, and growing dependence on public insurance against the backdrop of state fiscal challenges, citing those concurrent events as causes for concern.

"Challenges may lie ahead due to possible payment reductions proposed in federal healthcare reform legislation or budget pressures further down the road," according to the report, The Big Picture Update: Current Status of New York's Health Insurance Markets, a follow-up to an October 2009 publication.

"Medicare Advantage income continues to be critical to health plans' bottom lines," author Peter Newell, co-director of the United Health Fund's health insurance project, said in a statement. "But if changes on reduction in the payments are adopted either as part of federal deficit reduction or as part of health care reform to offset coverage expansions, health plans—and consumers—will have to adjust to a vastly different landscape."

The report focused on health plan enrollment and financial results to profile New York's private markets and state and federal public managed care funds. It was written by Newell, Allan Baumgarten, a consultant, and Jenny Heffernan, a research assistant for United Hospital Fund, a health services research and philanthropic organization.

The House and Senate are in the midst of reviewing legislation for healthcare reform, with proposals that may result in significant payment reductions to Medicare Advantage insurers, at least $100 billion over a 10-year period. More than 10 million seniors are enrolled in Medicare Advantage, and the changes could result in fewer options for them.

In 2008, Medicare Advantage "continued to be a reliable source of health plan profits, amounting to $400 billion," according to the report. In New York, Medicare Advantage plans increased by 18% from 2007 to January 2009, exceeding 800,000 members, according to the report.

As far as Medicare Advantage is concerned, the report stated that there may be a "rough road ahead," noting that its "income makes up a large proportion of overall health plan net income and may not be sustainable if federal healthcare reform relies on spending restrictions in Medicare Advantage premium payments to support non-Medicare coverage expansion or if broader deficit-cutting measures outside of the context of healthcare reform include similar premium reductions."

The report added, "Many observers believe Medicare Advantage private fee-for-service plans may also wither on the vine because of requirements that these plans form provider networks in 2011."

Overall, "As of 2008, New York health plans were, for the most part, weathering the recession, retaining surpluses, and maintaining profitability," the report states.

But aggregate health plan profits were reported below $800 million for the first time since 2001 and Article 43 insurers, which operate HMOs and indemnity plans under nonprofits, posted losses of $166 million, compared to gains of more than $480 million in 2006. The report stated it was a "very difficult year" for Article 43 corporations, making them a glaring exception among the portfolios.

"Enrollment in commercial markets continues to decline, there's a growing dependence on public insurance programs, and our state is fact the biggest fiscal challenge in decades," stated Jim Fallon, fund president, in a statement. "These concurrent trends are cause for concern."

Among the report's findings:

• Despite a decline in commercial group enrollment of more than 500,000, the loss of 200,000 jobs in New York between July 2008 and July 2009, and modest inflation rates, health plans collected more than $46 billion in premiums for coverage in 2008, an 11% jump over the 2006 level.


• The state's Prepared Health Services Plans, which specialize in public managed care programs, such as Medicaid Managed Care and Family Health Plus, increased their collective market share to 12%, reflecting growing enrollment in public programs; two of these plans— Fidelis and HealthFirst—each exceeded $1 billion in premiums for the first time.


• HMOs earned less money on their small group business than they did on their individual and Healthy NY programs.