In his confirmation hearing in March, new Centers for Medicare & Medicaid Services (CMS) Administrator Mehmet Oz indicated that CMS could save money by enabling consumers to enroll in multi-year Medicare Advantage (MA) plans. Though not a new idea, it hasn’t ever had a proponent serve as the Administrator at CMS.
Here’s a look at the idea, including the potential benefits and possible drawbacks:
Why is health insurance almost always purchased annually instead of over multiple years?
Realistically, the best answer is because it’s always been that way. Traditionally, people purchase health insurance annually. Rationale from an insurer’s perspective includes:
- Predicting and Managing Risk: Healthcare costs and utilization rates are subject to change annually due to various factors like advancements in medical technology, changes in the prevalence of diseases, and economic conditions. Annual contracts allow insurers to reassess these risks and adjust premiums to ensure financial stability.
- Regulatory Changes: Health insurance is a heavily regulated industry. Laws and regulations can change annually at state and federal levels. Those changes impact coverage requirements, premium rules, and other aspects of insurance plans.
- Market Dynamics and Competition: The health insurance market is competitive. Insurers enjoy the flexibility to adjust their offerings and pricing annually to remain competitive and attract customers.
- Updating Provider Networks and Costs: Insurers contract with healthcare providers (doctors, hospitals, etc.) to create their networks. Providers may renegotiate contracts as frequently as annually, affecting the cost of services within the network. Annual renewals allow insurers to reflect these changes in their premiums.
For those insured, annual enrollment processes provide:
- Flexibility to Choose Plans: Annual contracts allow individuals and employers to reassess their healthcare needs and financial situations yearly. As a result, individuals can switch to a different plan that better suits their evolving needs, whether due to changes in family size, health status, or financial circumstances.
- Benefit and Coverage Adjustments: Healthcare needs, available treatments, and coverage can change. Annual renewals allow insurers to update their plans to include new benefits or modify existing ones. It also allows policyholders to choose a plan that offers the most relevant coverage for the upcoming year.
- Premium Adjustments: While annual premium adjustments can sometimes lead to increases, they also allow for potential decreases if the overall risk pool experiences favorable trends.
How would beneficiaries benefit from a multi-year Medicare Advantage health insurance contract?
Implementing multi-year health insurance contracts in MA could offer several potential benefits for beneficiaries:
Improved Chronic Disease Prevention and Management
Expanding the contract period allows plans to make upfront investments in care management interventions. These investments may be resource-intensive initially but yield returns over the long term. Outcomes include better care management and improved health for beneficiaries with chronic conditions. For example, a multi-year model could incentivize covering programs like the National Diabetes Prevention Program. Those programs have potential to manage or prevent chronic diseases. However, plans often don’t cover them due to the difficulty in realizing a return within a one-year horizon.
Better Care Quality and Coordination
With assurances that a member would remain under their care and responsibility for more than one year, plans could begin to compete on long-term health outcomes rather than just short-term measures. Encouraging insurers to invest more in members could lead to developing products that improve their health. A multi-year model also aligns incentives for better coordinated, optimized care. Multi-year models incentivize payers to accelerate data and analytics sharing with providers to ensure the correct care at the right time.
Predictable Premiums and Potential for Zero Premiums
Multi-year contracts could offer predictable premiums, with a predetermined flat or slightly escalating rate over the contract period. These contracts avoid the rapid escalation that can occur under one-year contracts. Under this model, insurers have the potential to guarantee beneficiaries zero premiums across multiple years.
Guaranteed Stability in Enrollment and Provider Networks
For beneficiaries, a multi-year contract offers guaranteed stability in their enrollment. Plans would need to ensure access to consistent provider networks over the entire contract period, addressing potential issues that could arise from a longer-term commitment.
Potentially Greater Access to Higher Cost Therapies, Devices, and Medications
Therapies, especially new ones, can be extremely costly with long payback periods, making insurers hesitant to cover them when a member might switch plans quickly. A multi-year design would allow plans to amortize these costs over more time, making treatments with demonstrated long-term efficacy more financially enticing. The result may be faster and more widespread adoption of new therapies, including drug formulary optimization for chronic disease treatments and investments in specialized durable medical equipment that require significant upfront costs.
Increased Investment in Addressing Social Determinants of Health (SDOH)
While MA plans are empowered to invest in SDOH, these investments are long-term, and realizing a return within a one-year horizon can be difficult. A multi-year model could further incentivize investments to address social and mental barriers to health, such as food insecurity, social isolation, or limited income, by allowing plans to realize the ROI over more time. Potential improvements in health outcomes related to these factors could result.
Potential for Additional Benefits Over Time
Plans may be able to add additional benefits in subsequent years of a multi-year contract to incentivize beneficiaries to remain enrolled in the same plan. Plans may develop additional services attractive to specific populations, such as food, transportation, and other benefits for dually eligible individuals.
Lower Care Utilization via Chronic Disease Prevention
By investing long-term in disease prevention and effective treatment, beneficiaries’ health would likely improve, potentially leading to lower care utilization.
Improved Member Experience
Higher patient satisfaction with plan performance could translate into improved member experience.
How would insurers benefit from multi-year Medicare Advantage health insurance contracts?
As seen above, the stability and longer time horizon offered by multi-year contracts would change the financial incentives for MA plans. Plans could prioritize and invest in uneconomical long-term health strategies within the current one-year cycle.
Multi-year health insurance contracts could provide several benefits for MA insurers:
Increased Return on Investment (ROI) over a Longer Period
With a contract period of at least three years, health plans could achieve a higher ROI over the 3 to 5-year contract duration. This longer horizon allows risk-bearers to amortize their investments over the contract term.
Incentive for Long-Term Investment
The current single-year model creates distortions. For example, insurers potentially forego costly first-year investments because the benefits and cost savings may accrue to a different insurer if the member switches plans. Multi-year contracts would incentivize plans to invest upfront in preventative care and long-term treatment, knowing the member would remain under their care and responsibility longer. Treatments with demonstrated long-term efficacy, such as expensive novel drug therapies or specialized durable medical equipment, become more financially enticing as plans can amortize their costs over time.
Competition Based on Long-Term Health Outcomes
With assurances of a member’s continued enrollment for several years (e.g., three years), plans could begin to compete on long-term health outcomes rather than just shorter-term process and satisfaction measures. Health plans again become encouraged to develop products that genuinely improve members’ health in the long term.
Lower Care Utilization and Costs over Time
By investing long-term in disease prevention and effective treatment, plans may see their members’ health improve. Better health leads to lower care utilization and a decrease in healthcare costs. These savings could reduce beneficiary costs, translating to more effective plan cost management.
Decreased Customer Acquisition and Retention Costs
Multi-year contracts could decrease the costs of acquiring new customers and retaining existing ones annually. Those savings could be invested in long-term treatment or passed to the beneficiary.
Improved Member Experience and Star Ratings
Higher patient satisfaction with plan performance, potentially driven by better care management and outcomes, could translate into improved member experience and potentially higher MA star ratings.
Incentive for Value-Based Contracting and Data Sharing
Multi-year contracts empower payers to capture the value of providing longer-term investments in optimal care. These contracts naturally incentivize them to accelerate the sharing of data and analytics with providers to deliver the proper care at the correct time. Payers and providers might also seek to improve patient treatment and prevention compliance regimens as they share the risk for population health over time.
Potential for Increased Plan Margin
Higher patient satisfaction leading to less plan switching or disenrollment could increase the number of covered lives under MA while potentially improving plan margin.
Ability to Manage Risk and Tailor Products for a Known Member Base
Like commercial insurers could benefit from counting on a certain percentage of customers remaining for a fixed period, MA insurers with a known, loyal member base under multi-year contracts could better manage their costs and tailor their products. While risk adjustment still occurs annually, a multi-year model provides advantages untapped in the current process.
What are the next steps?
The key next steps for implementing such contracts would primarily involve piloting and developing a framework to test their feasibility and impact. Possible next steps include:
Launch a Trial Program or Demonstration Project
The Center for Medicare & Medicaid Innovation (CMMI) could launch a trial program allowing beneficiaries to commit to a single MA plan for at least three years. These trials can deliver data that help measure whether multi-year plans could overcome the institutional and traditional barriers of one-year contracts.
Conduct Regional Demonstrations
A Leavitt Partners paper suggests that CMS could adopt a national model that supports enactment through regional alliances responsible for specific demonstration projects. These regional demonstrations would test various aspects of the multi-year model, including the contract duration, the types of conditions or populations included, necessary support services, arrangements among providers and suppliers, and patient navigation tools.
Address Potential Challenges and Risks
Implementing multi-year contracts faces several challenges that the industry needs to address proactively. These include concerns from patient advocates about “lock-in,” the difficulty in changing the nature of relationships among stakeholders built over nearly fifteen years of MA operation, potential opposition from entrenched interests, and risks like adverse selection.
Engage Stakeholders
Gaining support from various stakeholders is a critical next step. Tasks include developing a clear strategy to engage patient advocates, involving regional providers, beneficiaries, insurers, and other stakeholders in the proposed alliances, and potentially navigating opposition from those who might see reduced revenue or profits.
Invest in Data Sharing and Infrastructure
A challenge for value-based contracting, but a key potential outcome of multi-year plans, is the need for data-sharing and information systems infrastructure. Payers may need to invest to enable sufficient data sharing and risk measurement among payers, providers, and suppliers, potentially leveraging federal authorities and resources.
Evaluate and Refine
The proposed pathway involves piloting, refining, and then expanding the use of the demonstration, indicating that evaluating initial trials will be necessary before adoption.
Certifi’s health insurance premium billing and payment solutions help healthcare payers improve member satisfaction while reducing administrative costs.
