Medicare: The Three Flavors

“You have to think of a new way to make something new.”

- John Waters

Choose your flavor

I love the old school ice cream sandwiches you can sometimes find at gas stations or mini marts, with three flavors of ice cream sandwiched between a kind of cookie made of unknown ingredients. There is nothing healthy about them, but with their three flavors offer something for everyone.

The Federal Medicare program similarly offers something for everyone. There are four “flavors” offering a range of benefits, coverage and options to access doctors and hospitals. Each has a unique set of revenue streams, and in some cases financial incentives.

Consumers select the version or combination that best suits their needs. Not all consumers enroll in all four parts of the Medicare program, and not all parts offer opportunities for companies to create new value and drive business growth.

• Medicare Part A covers care delivered in a hospital or skilled nursing facility

• 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

“Original Medicare”

The Medicare and Medicaid programs were enacted in 1965 by President Lyndon Johnson. Part A covers hospital and skilled nursing facility stays with an annual deductible applied to the hospital costs. Part B covers care delivered outside hospitals, preventative care, and durable medical equipment. This is “safety net” coverage and for about 40% of consumers the only form of Medicare enrolled in.

• Covers: Medicare Part A and B

• Costs: Annual Medicare Part B premium - $174/ month in 2024, typically deducted from a consumer’s monthly social security check

• Drug coverage: limited coverage of Part B drugs typically dispensed in a hospital or infusion clinic; no coverage of drugs typically obtained at a pharmacy

• Provider network: any doctor, hospital or facility that accepts original Medicare as reimbursed by CMS

• Enrollment timing: any time 3-months prior to or 3-months after turning 65-years old

• Revenue and financial incentives: Original Medicare offers no plan revenue or financial incentives to private companies

Business opportunities

There are some business opportunities in the original Medicare market for companies with effective engagement and communication platforms. Many consumers enrolled in original Medicare have the option to enroll in a Medicare Advantage or Medicare Supplement plan, but do not understand the benefits of either. There is a business opportunity to identify these consumers and connect them with insurance brokers and insurance carriers to drive enrollment conversion to Medicare Advantage or Medicare Supplement.

Medicare Supplement

There are ten standard Medicare Supplement plans identified by letters “A” through “N.” Each lettered plan has a standardized set of benefits which cover the out-of-pocket costs incurred by consumers enrolled in original Medicare.

• Covers: only specific out-of-pocket costs incurred when using Medicare Part A and B

• Costs: monthly premiums are based on age, gender, smoking status and range from $150 - $400/ month depending on plan and geography

• Drug coverage: no coverage of drugs beyond those covered by original Medicare

• Provider network: any doctor, hospital or facility that accepts original Medicare as reimbursed by CMS

• Enrollment timing: up to 6-months after turning 65-years old, after which medical underwriting may apply

• Revenue and financial incentives: Medicare Supplement revenue is limited to premium collected as there are no financial incentives to be gained beyond net margin earned

Business opportunities

Similar to original Medicare, there are opportunities in the Medicare Supplement market for companies with tools to support sales, consumer education and outreach. Since Medicare Supplement plans do not include drug coverage, these consumers are also a target market for Part D plan sales.

Medicare Advantage

Virtually every type of medical service you can think of is covered by a Medicare Advantage plan. Insurance carriers are paid a monthly capitation payment by CMS as well as a monthly premium from the consumer. The CMS monthly capitation payment is adjusted based on local healthcare expense benchmarks and the risk score of the enrollees, which in turn is based on coding recorded by providers during visits.

• Covers: Medicare Part C and typically Part D in combination with original Medicare Part A and B

• Costs: monthly premiums vary by plan and geography with the same premium for all enrolled consumers

• Drug coverage: prescription drugs on the plan formulary are covered; formularies are curated to contain unit costs and maximize PBM rebates

• Provider network: network is limited to the doctors, hospitals and facilities directly contracted by the health insurance company, with some plans offering out-of-network coverage on their Preferred Provider Organization (PPO) plans

• Enrollment timing: during the annual Medicare Annual Enrollment period - mid-October through early December - after turning 65-years old

• Revenue and financial incentives: Medicare Advantage plans are paid a monthly capitation payment from CMS, earn monthly premium revenue from consumers, pharmacy rebates from PBMs, and upside financial incentives based on plan CMS Part D Star ratings

Business opportunities

There are many business and innovation opportunities in the Medicare Advantage market. The CMS financial incentives are based on consumer experience scores and care quality metrics. Plans that manage costs and reduce the total expense below the CMS benchmark earn upside financial incentives. If their consumers provide positive experience ratings when surveyed by CMS, there is yet another bucket of financial incentives earned. Consumer navigation, engagement and care gap closure solutions are constantly sought from outside companies by Medicare Advantage plans.

Medicare Part D Plans

Similar to Medicare Advantage, Part D plans are offered by insurance carriers to consumers enrolled in original Medicare or Medicare Supplement. These plans cover prescription drugs typically dispensed at pharmacies with a range of copayments based on the plan formulary and drug tiering. These plans often use a revenue model leaning heavily into pharmacy rebates and a vertically integrated drug supply chain to control unit costs.

• Covers: prescription drugs not covered by original Medicare

• Costs: monthly premiums vary by plan and geography with the same premium for all enrolled consumers

• Drug coverage: prescription drugs on the plan formulary are covered; formularies are curated to contain unit costs and maximize PBM rebates

• Provider network: network is limited to pharmacies directly contracted by the health insurance company, though these networks are typically quite broad

• Enrollment timing: during the annual Medicare Annual Enrollment period - mid-October through early December - after turning 65-years old

• Revenue and financial incentives: Medicare Part D plans are paid a monthly capitation payment from CMS, earn monthly premium revenue from consumers, pharmacy rebates from PBMs, and upside financial incentives based on plan CMS Part D Star ratings

Business opportunities

Part D plans offer similar business opportunities to Medicare Advantage. The CMS financial incentives can be significant to plan sponsors. Consumer navigation to on-formulary drugs, medication compliance platforms and consumer satisfaction programs are critical to these plans.

Different flavors, different opportunities

Companies offering consumer engagement tools – both presale and post enrollment – with offerings that increase appropriate utilization and post-enrollment consumer education will find success with insurance carriers. Digital companies able to support insurance company provider directories, streamline referrals and pre-authorizations, and enhance consumer navigation can help carriers elevate the consumer experience – driving improved Star ratings and subsequent financial rewards.

Medicare is old school, just like those great ice cream sandwiches from the mini mart. It is one of the largest and fastest growing healthcare segments with many opportunities to add value to the various Medicare flavors.

2itive 2024

2itive 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