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Medicare Blog | Medicare News | Medicare Information

MACRA and the future of Medicare Supplements

Posted by www.psmbrokerage.com Admin on Tue, Jan 08, 2019 @ 04:42 PM

Is Plan F going Away in 2020? Not Exactly

Recently passed legislation referred to as MACRA (Medicare Access and CHIP Reauthorization Act of 2015 ) will, among other things, affect the Medicare Supplement industry in calendar year 2020. Specifically, the Part B deductible can’t be covered. Therefore, Plan F will no longer be an option for individuals newly eligible for Medicare starting January 1, 2020. However, in-force policyholders will be able to keep their current versions of Plan F and individuals eligible for Medicare prior to January 1, 2020 (i.e., not “newly eligible”), can purchase the current version of Plan F on or after January 1, 2020.

For the Medicare Supplement market, the news is mixed. Overall loss ratio experience (and resulting premium rate pressure) could be more favorable for several years following the implementation of MACRA. However, retention dollars (premium less claims) will most likely be reduced due to MACRA. 

Individual carriers are in a position now to plan a course to proactively mitigate risks or exploit opportunities. We recommend analyzing the financial impact of MACRA implementation on your Medicare Supplement product portfolio to provide insight into appropriate next steps. Using a model built from our knowledge of the market, we have simulated the future policy issues of Medicare Supplement Plans F and G and observed some interesting insights. 

Medicare Supplement market will split into two distinct markets

What we now consider one market for Medicare Supplement will effectively become two markets starting in 2020. We will call them Newly Eligible (NE) and Non Newly Eligible (NNE). This is terminology from the regulatory language that specifies eligibility to purchase Plan F (or Plan C). The NE market will consist of individuals who reach the age of 65 on January 1, 2020, and later. Over time, this market will have an increasing maximum age and a minimum age of 65. The NNE market will consist of individuals who reach the age of 65 before January 1, 2020, and an increasing minimum age but no maximum age.

Overall loss ratio experience should be better for a few years following MACRA implementation

Based on modeling various reasonable scenarios of the Medicare Supplement market, experience on policies issued in 2020 and later should initially exhibit a loss ratio as much as 1.0% - 2.5% lower than would otherwise be the case. The reason is that exposure to the non-medically underwritten higher loss ratio open enrollees will shift from Plan F to Plan G, a lower benefit plan. Therefore, the higher loss ratio business has lower exposure and the overall loss ratio is lower all else being equal. This loss ratio improvement will likely last for a few years and then reverse with portfolio loss ratios realizing a steady increase in future years as Plan G exposure overtakes Plan F. Appendix A illustrates this pattern based on our overall projection of the market with and without the implications of MACRA.

Plan F sales, which will only be available to the NNE market, will consist of a greater portion of healthier underwritten business than under the current environment. Plan F will still be available to NNE individuals under guarantee issue provisions.

On the other hand, Plan G will likely comprise a greater portion of higher cost/utilization open enrollment and guarantee issue business from the NE market. As the NE market grows and the NNE market shrinks over time, the relative mix of Plan F and Plan G will shift and the market will be more reflective of Plan G experience.

Initially, the favorable underwritten Plan F experience issued at higher rate levels could offset the negative Plan G experience. As time goes by and Plan G becomes an even greater portion of the market, this relatively unfavorable experience will overcome the positive Plan F experience unless corrective action is taken. The aggregate impact may remain positive for numerous years.

Download the PDF / Read the full article

Questions / comments? We would love to hear your thoughts and how these changes might impact your current business.

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Tags: Medicare, Medicare Supplement, MACRA

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