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Interest in Medicare Advantage mounts for insurers as ACA exchanges falter

Health insurers that have retreated from Affordable Care Act exchanges are looking toward another market for growth: the rising number of seniors and Medicare Advantage.

The proportion of the U.S. population aged 65 and older is projected to increase from 14% to 21% in the next two decades, according to a J.D. Power & Associates report released Aug. 10. But at the same time, only 11% of members in the 60-or-older cohort said a Medicare Advantage plan has been introduced to them.

That disparity presents an opportunity for insurers to step in and pitch their Medicare Advantage offerings, Valerie Monet, the author of the report, said in an interview.

Medicare is government-funded health insurance for people 65 and older or with certain disabilities. Once a U.S. citizen crosses the 65-year-old threshold, he or she is eligible to receive Medicare benefits.

Medicare is broken down into four parts. Part A is hospital insurance, designed to help pay for inpatient care. Part B helps pay for services from doctors or other healthcare providers, as traditional health insurance. Part D helps cover the cost of prescription drugs.

Medicare Advantage, or Part C, is a program heavily subsidized by the federal government provided by private insurers to eligible seniors that sometimes includes Part D. It covers all benefits and services covered in Parts A and B.

Medicare Advantage plans tap directly into the trend of an aging population. Kaiser Family Foundation Medicare policy expert Gretchen Jacobson said Medicare Advantage enrollment has grown 71% since 2010. The policies cap the amount of out-of-pocket expenses members pay as well as bundle Medicare offerings into one plan, she explained in an interview.

On the insurer side, Jacobson said, Medicare Advantage has a robust, predictable structure that is highly favorable for insurers.

"In general, it has been a relatively profitable market for insurers where they're able to make those payments from the government work and make considerable profits," Jacobson said. "With the asterisk that some Medicare Advantage insurers have gone out of business as well."

Insurance giants UnitedHealth Group Inc. and Humana Inc. were the dominant underwriters for Medicare Advantage plans in 2016, with about double the premiums of the next-largest insurer, Aetna Inc., according to an analysis by S&P Global Market Intelligence.

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Leerink Partners equity analyst Ana Gupte said in an interview that the market will continue to grow. By her estimates, one in two Medicare-eligible people will be enrolled in a Medicare Advantage plan in the next 20 years.

"The pie is getting bigger and the slice of the pie is getting bigger as well," Gupte said. Another analyst, UBS' A.J. Rice, estimated in an interview that the market will grow as much as 8% in 2018.

In UnitedHealth's second-quarter earnings call, executives projected that Medicare Advantage penetration of the market could exceed 50% in 2018. At the same time, President David Wichmann said the company expects to grow its Medicare Advantage market share.

During the call, the company announced a renewed partnership with seniors advocacy behemoth AARP. Its largest competitor, Humana, has had some government reimbursement challenges, J.P. Morgan equity analyst Gary Taylor said in an interview. That could help UnitedHealth and Aetna grow faster, he said.

In addition, Cigna Corp. was sanctioned in 2016 from marketing its Medicare Advantage plans, sinking its enrollment in 2017 by 10%, Taylor said.

"Of the largest players, Aetna and United [are] gaining share at the expense of Humana and Cigna," Taylor said.

But, Taylor said, Cigna is eyeing a comeback. In the company's second-quarter earnings call, President, CEO and Director David Cordani said the company is looking to expand its Medicare Advantage portfolio footprint in 2018. Its strategy, he said, had been to grow organically, but now the company would look to new investments and M&A to broaden that footprint.

Moreover, as ACA exchanges continue to face regulatory uncertainty from Washington, D.C., the time to switch gears and prepare to take more market share in Medicare is now, Gupte said. The space is stable from a regulatory point of view in the current political landscape, and President Donald Trump, Secretary of Health and Human Services Tom Price and Centers for Medicare and Medicaid Services Administrator Seema Verma have all expressed a hands-off approach to entitlement reform, she said.

"The Trump administration is driving a more private plan-friendly policy," Gupte said. "Everything is in a sweet spot for Medicare Advantage [and] private plans. It's the right place to be."