Insurers Signal Medicare Advantage Buyouts Ahead

Anthem, Humana and WellCare Health Plans are signaling plans to aggressively grow their Medicare Advantage businesses with the help of mergers and acquisitions.

The three health insurers are in a competitive battle with Aetna, Cigna, UnitedHealth Group and the nation’s Blue Cross and Blue Shield plans to capture bigger shares of a fast-growing market of aging baby boomers turning 65 years old and becoming eligible for Medicare coverage. Medicare Advantage plans contract with the federal government to provide extra benefits and services to seniors, such as disease management and nurse help hotlines, with some even providing vision and dental care and wellness programs.

“In Medicare, we continue to see substantial growth opportunities as approximately 11,000 baby boomers age into the Medicare eligible population every day,” Anthem CEO Gail Boudreaux told analysts during the insurer’s quarterly earnings call. “Historically, Anthem has lagged in Medicare Advantage penetration and we have been working to capture more of our fair share of this market.”

And there’s no time to lag when it comes to Medicare Advantage as the policy climate improves in Washington. President Trump’s newly confirmed U.S. Secretary of Health And Human Services, Alex Azar, has spoken favorably about Medicare Advantage and the budget Congress passed last week helps insurers offering such plans to seniors.

Medicare Advantage is one of the few bipartisan areas of agreement in healthcare, supported by Democratic President Barack Obama and the Affordable Care Act he signed into law. The ACA added a star ratings system to rate quality and customer satisfaction for consumers to use in choosing a Medicare Advantage plan. Health plans that score 4 or better on a five-notch scale can get higher payments.

“In an era of uncertainty in other lines of business, the majors are hoping to expand their footprints in Medicare Advantage before it is too late,” says Andrew Kadar, managing director of L.E.K. Consulting’s healthcare services segment said. “(The Centers for Medicare & Medicaid Services’) recent favorable guidance for 2019 reimbursement as well as Alex Azar’s robust support of Medicare Advantage during his confirmation hearings add credence to the notion that Medicare Advantage enrollment will grow at high single-digit rates for the next five years.”

Currently, just under 35% of Medicare beneficiaries, or about 20 million Americans, are enrolled in MA plans. But Medicare Advantage enrollment is projected to rise to 38 million, or 50% market penetration, by the end of 2025 , L.E.K. Consulting projects.

Anthem is finalizing the acquisition of Medicare Advantage plans in Florida that will add 170,000 Medicare Advantage members in the state this year. And the insurer plans to use those deals as a beachhead for expansion in the central and northern part of Florida, which is popular retirement area for seniors and therefore a hot Medicare Advantage market.

Humana, meanwhile, is increasingly focused on integrating physician services and care in the home with its Medicare Advantage plans. Humana in December said it will acquire a 40% stake in Kindred Healthcare’s home care division for about $800 million.

Humana is also looking at merger and acquisition opportunities to grow its Medicare Advantage enrollment. The insurer ended 2017 with nearly 2.9 million Medicare Advantage enrollees.

“From an M&A perspective, we continue to look at strategic acquisitions to build out our capabilities, particularly in the primary care arena, but we also continually look for any other assets that could enhance our healthcare services segments,” Humana chief financial officer Brian Kane told analysts  last week.  “We would also have interest in Medicare Advantage assets that increase our presence in under-penetrated markets.”

The top executive at WellCare, too, said the company is on the hunt for Medicare Advantage opportunities following the successful purchase last year of Universal American Corp. WellCare now has more than 500,000 Medicare Advantage members in 18 states.

Medicare figures prominently in an effort to “double the size of the company by 2021,” WellCare CEO Ken Burdick told analysts on the company’s fourth quarter earnings call last week.

“We expect that growth will occur both in our Medicare and Medicaid lines of business,” Burdick said. “We think that organic growth and acquisitions will both be meaningful contributors to that trajectory.”

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