Medicare Advantage Product Design

“A party without a cake is just a meeting.”

- Julie Child

Springtime is Medicare Advantage time

Private Medicare Advantage carriers are in the thick of designing their 2025 products, benefits, and programs as spring blooms. The Center for Medicare Services (CMS) requires every carrier to submit a bid that details their product designs, drug coverage and financial models by the first week of June each year. These plans will be sold to consumers starting in October during what is known as the Annual Enrollment Period (AEP) and will go into effect the January 1st of the New Year.

So, while the trees begin to bud and the flowers bloom, important decisions are being made across the healthcare industry that will impact corporate, hospital and provider finances throughout 2025.

Medicare Advantage product design starts with an understanding of the four parts of the Federal Medicare program:

• Medicare Part A covers care delivered in a hospital

• Medicare Part B covers outpatient care, primary care, durable medical equipment and preventative care

• Medicare Part C are private Medicare Advantage plans, which include Parts A and B and typically Part D

• Medicare Part D covers prescription drugs, normally dispensed from a pharmacy

Types of Medicare Advantage plans

There are five types of Medicare Advantage plans offered, though the vast majority of seniors do not qualify for enrollment in one of the specialty plan types. Private Medicare Advantage carriers may offer one or more of these types of plans, and most elect to not offer a specialty plan at all.

• MADP plans: cover all medical care and prescription drugs and include many supplemental benefits such as dental, vision, hearing, fitness and over-the-counter drug cards

• D-SNP plans: enrollment is limited to consumers also enrolled in Medicaid and are known as “dually eligible”. Benefits on these plans are similar to MAPD plans but are often tailored to this high need cohort, with out-of-pocket costs $0 for most care and drugs.

• C-SNP plans: chronic conditions special needs plans with enrollment limited to consumers diagnosed with a chronic condition, such as diabetes, end-stage renal disease or heart disease.

• I-SNP plans: enrollment is limited to consumers in long-term care facilities.

• PDP plans: cover only prescription drugs and are designed to support “original” Medicare parts A and B or Medicare Supplement plans (also known as Medigap plans.)

Medicare premiums

Many private plans have a monthly premium, though the industry is quickly moving to $0 plans as a market leading product in most geographies. Each year CMS sets a low-income subsidy benchmark (LIPSA), commonly known as Extra Help. Consumers that qualify based on income for Extra Help automatically receive a subsidy to offset their monthly premium. In 2024 the LIPSA amount is $34.70. This means a low-income consumers can enroll in a private Medicare Advantage plan with a premium of $34.75 or less and pay no monthly premium.

Note that in all cases, anyone 65-years and older must pay the Medicare Part B premium regardless of work status or enrollment in a private Medicare Advantage plan. The Part B premium in 2024 is $174.70. In many cases the Part B premium is automatically deducted from the consumer’s monthly social security payment, something many consumers on a fixed income do not love.

Medicare Advantage product design

Private MAPD Medicare Advantage product design can be divided into three buckets of benefits: coverage of medical services, coverage of prescription drugs and supplemental benefits. There are rather minimal out-of-pocket cost differences between top competitors when it comes to covering medical services. Prescription drug cost shares between top competitors do not vary materially, but carriers manage their formularies to benefit from drug rebate programs, so there can be wide variation between what drugs are covered by each carrier. Supplemental benefits are where the competition between carriers currently is most heated, and where come carriers are willing to take losses to gain market share.

All MAPD plans have deductibles and upper limits on out-of-pocket costs. In the Western US almost no MAPD plans have medical deductibles, but many have prescription drug deductibles ranging from as low as $100 to as high as $500. The upper limit on out-of-pocket costs is known as the MOOP (maximum out of pocket) amount. The MOOP is highly visible to shoppers and a source of shopper anxiety. Top competitors strive to achieve the lowest possible MOOP and drug deductible while maintaining financial sustainability.

Coverage of medical services

Virtually every type of medical service you can think of is covered by a MAPD plan. Most services have a defined dollar copayment due at the time of the visit. Copayments for inpatient care are typically structured as $X per day for X days: example $300/day for 5-days and $0/day thereafter up to 100-days. Most consumers shy away from coinsurance - structured as a percent of the cost of the service – due to the cost uncertainty. Example: high tech radiology benefit with coinsurance of 20% leaves the consumer trying to guess how much the total cost will be and how much the 20% is that they will have to pay.

Coverage of prescription drugs

MAPD plan drug coverage typically has copayments and coinsurance structured by five drug tiers: preferred generics, generics, preferred brand, non-preferred brand, specialty. A typical example of the out-of-pocket costs on top MAPD plans is: $0 preferred generics, $0 generics, $45 preferred brand, $95 non-preferred brand, 29% specialty. Carriers offer reduced out-of-pocket costs for 90-day fills vs 30-day fills and try to drive adoption of mail order fulfillment to increase medication compliance.

Keep in mind, carriers can place covered drugs in whatever tier they choose. Carriers earn revenue in the form of rebates from pharmaceutical corporations based on utilization of select drugs. By curating their drug formulary insurance carriers can manage and maximize this revenue stream. Example: a vertically integrated corporation with both a Medicare Advantage plan and a pharmaceutical division like CVS/ Aetna will place their own drugs on a lower tier and a similar competitor’s drug on a higher tier to drive utilization of their product.

Supplemental benefits

As top carriers have coalesced around similar medical and drug benefits, supplemental benefits have become a battleground to win new consumers and retain current ones. Virtually all these benefits are provided by outside vendors, typically via a capitated contract. By effectively managing the health of enrolled consumers, and controlling for non-essential utilization, carriers can afford to offer an extensive list of supplemental benefits.

Enriching these supplemental benefits year-over-year has become a prerequisite for winning and retaining business. But affording annual enhancements is a growing challenge for carriers. They must control their underlying cost structure year-over-year to afford enhancements, while hospitals and providers continue to demand increased reimbursement levels.

Dental: the second greatest source of dissatisfaction across all consumers after prescription drug costs. Typical benefits cover one or two cleanings and x-rays per plan year with no out-of-pocket costs. More expensive dental services like restoration and periodontics are often covered, but only up to an annual maximum dollar limit. Those limits often do not cover the entire cost of a procedure, leaving the consumer with a high-cost bill for the balance.

Vision: typically offering one exam per year with no out-of-pocket costs plus a combined allowance of $100 - $250 per year to purchase eye wear or contact lenses.

Hearing aids: like vision coverage, one exam per year with no out-of-pocket costs plus an annual allowance of $1,500 - $2,000 per year to purchase hearing aids.

Non-emergency medical transportation: not offered on many plans, but when available covers a set number of trips to CMS approved destinations, such as medical appointments, prescription drug store trips, and physical therapy visits.

Chiropractic and acupuncture: included on all competitive plans, typically with no out-of-pocket costs, and with an annual maximum number of visits covered per year.

Post-discharge meals: a specified number of prepared meals delivered to the consumer’s home after an inpatient hospital discharge, often for 14 days and with no out-of-pocket costs.

Over-the-counter (OTC) drug card: a bit of a misleading name, these debit cards are pre-loaded with a set dollar amount, typically per 3-month period. They can be used to purchase any qualifying item at a retail location, such as aspirin or bandages. These cards are highly desirable because they are “cash in the pocket” of consumers on fixed incomes.

Flex spending cards: the most recent iteration of OTC cards, these debit cards can be used to pay out-of-pocket costs for specific items or services. Some carriers have issued dental flex spending cards in lieu of traditional dental coverage with values up to $2,000 - $5,000 per year. Flex spending cards have also been used to offer grocery benefits with a set dollar value automatically reloaded monthly. These cards are quickly becoming the battleground upon which carriers compete for market share and new enrollments. CMS has been watching the evolution of this benefit and may intervene in the future to limit or influence future iterations. Consumers like the cards, though sometimes they struggle to understand how to correctly use them. Time will tell what the future of this supplemental benefit looks like.

Part B buy-back: recall that all consumers 65-years and older must pay the monthly Medicare Part B premium. The 2024 $174.70 premium represents a significant hit to a consumer’s monthly Social Security check. Some carriers offer plans that pay some or all of the premium on behalf of the consumer. This has proved to be a double-edged sword. Understandably, consumers flock to these plans when they are offered. But a number of carriers have been caught out financially and had to quickly course correct. While popular with consumers, most top carriers have been warry of offering this benefit.

Medicare Advantage provider networks

All health insurance carriers leverage proprietary contracted network agreements to manage their underlying unit costs. There are two primary types of Medicare Advantage networks offered in the market: Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO.) Because such a large portion of Medicare Advantage revenue results from risk coding and consumer experience scores, HMO networks are much preferred by carriers and providers.

Many consumers find themselves moving from an employer provided PPO plan to Medicare Advantage and assume they need a PPO plan after they shift to Medicare Advantage. This may be true for some, but carrier claims data generally indicates consumers seek the majority of their healthcare close to their home, from providers they have been seeing for years while on their employer provided plan.

Some recent industry news has highlighted the growth of Medicare Advantage PPO plans. But is important to parse Group Medicare Advantage (EGWP) plans offered by employers to their retirees and Individual Medicare Advantage plans purchased by individuals. In the Western US there has been material growth in EGWP PPO Medicare Advantage plans, but not equally strong growth within the individual market.

Adding value to Medicare Advantage product design

As one of the largest and fastest growing healthcare segments – both in terms of enrollment and volume of services rendered – there are many opportunities to add value to Medicare Advantage product design.

If you work at a health insurance carrier that currently offers Medicare Advantage plans, or is considering launching a new product, engaging an outside perspective from someone with a track record of successful market entries and product growth can be invaluable. A deep dive into competitor benefit data, enrollment trend and consumer preferences can help you avoid missteps and lost time.

If your company offers consumer engagement tools – both presale and post enrollment – position your offerings to increase appropriate utilization and post-enrollment consumer education. Research has shown time and again most Medicare Advantage enrollees have a rudimentary understanding of their plan benefits at best.

Digital companies that are able to support insurance company provider directories, streamline referrals and pre-authorizations, and enhance consumer navigation can help carriers elevate the experience of their covered consumers.

Medicare Advantage product design requires having all the right ingredients in place. There is no single recipe that works for every market and consumer segment. But with the right expertise, partnerships and strategy it won’t be half baked.

20242itive is a Portland based consultancy founded by Erik Goodfriend, offering a unique combination of market intelligence, knowledge of healthcare payment systems and creative business strategy insights. Feel free to contact us at info@2itive.com