Medicare Advantage Provides Roadmap for ACA Plans

Medicare Advantage markets are more robust, with higher private insurer participation and lower average premium growth than the Affordable Care Act marketplaces.

The success of Medicare Advantage could be a roadmap for the struggling ACA marketplaces, an analysis from the Urban Institute suggests.

Researchers examined why MA plans thrived in 2017 as marketplace plans struggled, and how the programs differ—including insurer participation, the risk-adjustment system, and provider payments. They concluded that adopting policies to increase enrollment in marketplace plans as well as insurer participation could make the ACA marketplaces stronger and more stable.

The Medicare Advantage market included 19 million enrollees in 2017, or 33% of the total Medicare population. These enrollees stick with their plans year after year and are generally not very sensitive to changes in price. Medicare Advantage also has a risk adjustment system that is relatively favorable to plans and is not budget-neutral, the study found.

Conversely, ACA marketplaces include more intense competition between insurers, have more price-sensitive enrollees, enroll fewer covered lives in the non-group market, calculate benchmark premiums differently, and have less favorable risk adjustment for insurers.

"ACA marketplaces and Medicare Advantage may seem similar, since they are both highly regulated direct to consumer insurance markets," said Katherine Hempstead, senior adviser at the Robert Wood Johnson Foundation, which funded the study.

"Yet Medicare Advantage has been much more successful, due in large part to regulatory features that give insurers greater certainty about bidding, risk adjustment, and provider payment," she said.

The study offers five policy recommendations based on Medicare Advantage’s success to strengthen the marketplaces for long-term stability, including:

• Raise enrollment in marketplace plans by increasing premium and cost-sharing subsidies and eliminating short-term plans;
   
• Cap provider payment rates at Medicare rates or a fixed percentage above them;
   
• Standardize cost-sharing within metal tiers, or limit the number of plan designs available;
   
• Lift the budget neutrality requirement for risk adjustment in the marketplaces;
   
• Use a higher benchmark than the second-lowest-cost silver plan for calculating premium tax credits.