Obamacare Was Supposed To Kill Medicare Advantage. It Only Made It Stronger

Marilyn Tavenner is about to make an unprecedented move: From head of Medicare, to the nation’s top lobbyist for private insurers — in just six months.

Tavenner will succeed Karen Ignagni as the CEO of America’s Heath Insurance Plans, the New York Times reported on Wednesday. Tavenner had served as the administrator of CMS for more than three years, where she was responsible for Medicare, Medicaid, and much of Obamacare’s implementation.

Critics immediately seized on the merry-go-round of Washington — how another top White House official has found a job with the lobbyists she used to negotiate with.

“Is there a revolving-door emoji?” NPR’s Jacob Goldstein ruefully tweeted.

But I think there’s a very telling line, buried near the bottom of the Times‘ 798-word story.

“Asked about her priorities, Mr. Tavenner said she wanted to protect Medicare Advantage, the program under which private insurers manage care for more than 30 percent of the 55 million beneficiaries of Medicare.”

There’s a reason why private insurers care so much about Medicare Advantage: It’s arguably their hottest market right now.

While enrollment in employer-sponsored insurance has essentially stagnated, total enrollment in MA plans is expected to double by the end of the decade, per this graphic from my colleagues at the Advisory Board Company.

And with the nation’s 65-and-older population rapidly growing — every single day, 10,000 more people become eligible for Medicare — private insurers are fighting to get a slice of the pie.

Aetna’s $37 billion proposed acquisition of rival health plan Humana is largely driven by getting access to Humana’s strong Medicare Advantage volumes.

(Humana is the number one insurer for Medicare Advantage, by enrollment, in 11 states and is one of the top 3 firms in another 19 states, according to the Kaiser Family Foundation.)

Medicare Advantage’s Second Life

The resurgence of Medicare Advantage is a stunning turnabout for a program that was supposed to be dead in the water, thanks to the Affordable Care Act.

Medicare Advantage was created under the President George W. Bush administration, as a private health insurance option for Medicare beneficiaries. (Essentially, commercial health plans become contractors for Medicare.)

But by 2010, Medicare Advantage had become a convenient political target: CMS was paying a premium of as much as 13% for MA plans compared to traditional Medicare, Zachary Tracer reports for Bloomberg News.

As a result, the drafters of the Affordable Care Act dramatically cut CMS’s payments to MA health plans, seeking a way to help pay for the ACA, was well as trying to bring Medicare Advantage and Medicare in line.

Some warned that health plans might respond by pulling out of Medicare Advantage, and the market would start to dry up.

“I am concerned about the future of Medicare Advantage,” Douglas Holtz-Eakin, the head of the American Action Forum, testified in front of a House committee in 2013. The ACA’s cuts raise the question “whether Medicare Advantage will remain a viable option within the Medicare program and deliver [c]omprehensive benefits.”

And the Congressional Budget Office predicted that Medicare Advantage enrollment would fall about 35% by 2019, thanks to the ACA’s reforms.

Instead, Medicare Advantage enrollment has already grown 42% since 2010.

“The market has been very, very robust,” Tricia Neumann of the Kaiser Family Foundation told me, when we spoke about Medicare Advantage last week. She pointed out several reasons why seniors may be drawn to Medicare Advantage, from the relatively flat MA premiums to Americans’ familiarity of getting insurance through a private payer.

Medicare Advantage also tends to cover additional services, like Part D drug coverage, compared to traditional Medicare.

“As people are turning 65 and considering their options, Medicare Advantage is one-stop shopping,” Neumann points out.

AHIP has fought hard to preserve Medicare Advantage, which it trumpets as offering higher-quality care than traditional Medicare.

In the past several years, the insurance industry has lobbied successfully against proposed changes that would’ve resulted in a bigger reduction in payment.

“At least so far, CMS hasn’t cut [Medicare Advantage] rates to the extent they were expected to when the ACA was passed,” added the Advisory Board’s Hamza Hasan. “So for the moment, it’s a rapidly growing market, and none of the major payers want to be left out.”

And by hiring Tavenner, insurance companies gained a new advantage at the negotiating table.

After all, who knows better how to fight for Medicare Advantage … than the former head of Medicare?