skip to Main Content

PPO Products Proving Growth Engine for Medicare Advantage

PPO Products Proving Growth Engine For Medicare Advantage

The healthcare industry is abuzz about the potential of Medicare Advantage (MA). With Exchange and Medicaid lines having limited margins and commercial lines with eroding membership, many insurers are turning to Medicare for their growth. After all, the nation is aging and people are living longer. Despite a master rate reduction in MA from the Affordable Care Act (ACA), the very inefficient Medicare fee-for-service system (FFS — upon which MA rates are still largely based) helps drive rather reliable rate hikes annually. Even if that were to change, the power of managed care allows plans to deliver the same Medicare FFS benefit at 65 to 80 percent of the cost (depending on the region) and use the rest to enhance member benefits and grow their membership. This still gives plans a healthy 5 percent (plus) margin after sales and administrative costs on a very high $10,000 average premium nationally.

The growth estimates for Medicare Advantage are phenomenal. About half of all Medicare beneficiaries will be enrolled in Medicare Advantage plans by 2025, with some estimates seeing this by 2021. Between 2030 and 2040, that number should reach 70 percent.

Why the growth?

  • CMS’ benefit and rate systems force MA plans to enhance benefits over and above traditional Medicare FFS, so wise consumers are flocking to MA plans.
  • The added benefits include reduced cost-sharing as well as other financial protections, such as unlimited hospital days at low cost. There are caps in the Medicare FFS system. For a low-income person, a major inpatient health event can be disastrous. It is the leading cause of bankruptcy. MA plans shelter seniors and the disabled from this.
  • Added services are common in most markets, such as dental, vision, hearing, and more.
  • Atypical Medicare services, including in-home services, now can be offered to enrollees.
  • Managed care offers other important services, such as care management and coordination. Seniors and the disabled have a hard time navigating the healthcare system without such services, which are absent in traditional Medicare FFS.

What is interesting, though, and the real purpose of this blog, is that we are seeing growth in two very different places in MA. The mainstay growth in the HMO products area is steady and will continue to do well. But PPO products have grown as much in sheer numbers over the last two years as the HMO products. Health plans – especially those in multiple states and regions – would be wise to pay attention. As the chart below shows, from October 2016 to October 2018, the MA program grew at a healthy 17 percent. As we discussed above, that growth will accelerate over time. HMO products grew 1.5M members or 13 percent while PPO products grew 1.6M or 29 percent.

Approximate Medicare Enrollment By Type
Type Oct-16 Oct-18 % Growth Member Growth
HMO/HMO-POS 11,600,000 13,100,000 13 1,500,000
Local-PPO/Regional-PPO 5,600,000 7,200,000 29 1,600,000
All OTHER (PACE/COST/MSA/PFFS/MMP) 1,300,000 1,300,000 0 0
TOTAL 18,500,000 21,600,000 17 3,100,000

Why is this?  Plans have long offered tight-network HMO products in more urban markets. Cost control is rather easy, with providers and hospitals plentiful. This allows plan to build cost-efficient networks and pass on savings to what are largely low- or middle-income seniors and the disabled looking for better benefits and the financial protections noted above.

Plans now are recognizing that higher middle income and even affluent Americans may be MA targets. Gone are the days of solid retiree coverage. Even the relatively well-to-do must look for greater value in healthcare, which includes financial protections. With the cost of Medicare Supplement policies increasing, MA products look more and more appealing to income groups that traditionally gravitated to the freedom of having Medicare FFS with a gap policy.  The broader PPO product is the answer for them – more flexible than the HMO network offering but with many of the same added services, reduced cost-sharing, and financial protections. PPO products are especially good for the so-called “snow birds,” who migrate to the south in winter for warmer climates but faithfully return to their northern roots in summer. Combining the PPO for medical with an integrated Part D benefit is the biggest value a senior can find.

The MA PPO product can be a bit of a misnomer. While PPOs in the commercial world may or may not have substantial out-of-network coverage, in the MA world PPOs must have the dual network feature. In the MA world, PPOs:

  • Tend to have bigger provider networks than many HMOs.
  • Have higher monthly premiums than HMOs.
  • Tend to have higher out of pocket costs, even for fixed co-pays, than HMOs.
  • In most cases lack PCP requirements unlike MA HMO.
  • In most cases lack referral requirements from a PCP to a Specialist.
  • Have both in-network and out-of-network services. (Members enrolled in an MA HMO can only get out-of-network services in four critical areas (emergency services, urgently need services, out-of-area dialysis, and Part D drugs.))
  • Have authorization requirements for in-network services, but not out-of-network ones. Note that payment could be denied if the services are not deemed medically necessary when submitted for reimbursement (a member can usually ask beforehand).
  • Have out-of-pocket caps for in-network services as well as a higher one for total in- and out-of-network services, but the in-network cap is usually higher than an HMO offering.
  • Regional PPOs (R-PPOs) are less popular than Local PPOs (L-PPOs) (right now about 80 percent are L-PPOs) and are targeted toward more rural areas.

(There is a less-popular type of MA product called MA HMO Point of Service MA-HMO POS) which is a bit of a blend between PPO and HMO. It offers some services out of network.)

While the HMO and PPO products have similarities, they also require plans to create different care management strategies.   After all:

  • Bigger networks tend to mean less member attention and focus by providers.
  • In many cases, MA PPOs don’t require PCPs. In the HMO world, PCPs are the critical nexus for plans in a member’s healthcare journey.
  • Lack of referrals also creates challenges ensuring coordination between providers and potential for over-utilization.
  • The out-of-network benefit and lack of authorization for such services also creates network leakage and lack of coordination.

In the HMO world, PCPs are the hub. Plans work closely with their PCPs on risks associated with members and to close care gaps. The plan and PCP will share data throughout the member’s enrollment to drive costs down and quality up. In the HMO world, capitation and shared risk arrangements can be a great driver of provider attention and desired outcomes. While these are available in PPO in the highly urban areas, they are less common overall.

If the PCP is not in play in the PPO world, plans have greater challenges in cost-containment, coordination of care, and fostering quality outcomes. They must rely much more on data-driven approaches to care management and take more of a direct lead on identifying risks and gaps (often in real-time). While still important in the HMO world, the ongoing funneling of data and information is essential. Plans likely need to determine, through an attribution algorithm, the lead care provider they hope to rely on to monitor and coordinate care. Last, plans need to pay special focus on driving Star and Risk Adjustment scores in PPO as they, again, don’t have the tight PCP connection.

In summary, while the more affluent Americans who will enroll in MA PPOs might indeed be healthier than those lower income Americans in the MA HMO counterpart, the PPO design creates some unique care challenges and financial risks for plans. A different paradigm must be developed to succeed in this fast growing product area.

MedHOK’s integrated risk stratification, care gaps and real-time reporting solutions can help MA plans succeed with PPO products. Click here to read more about us on our website, or here to speak with someone from our team.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

Back To Top