Editor's note: This weekend, we're taking a break from our usual fare to check in on a powerful trend in American health care. In this piece – adapted from the Prosperity Investor October issue – Dr. David Eifrig, Thomas Carroll, and John Engel discuss a popular health program that's about to serve a new wave of consumers... and one group of companies that's poised to benefit.
The 'New Wave' That's Flocking to Easier, Better U.S. Health Care By Dr. David Eifrig, Thomas Carroll, and John Engel, Prosperity Investor
The dawn of Medicare Advantage is one of the most underappreciated success stories in the modern health care industry... Back in the 1990s, the government passed a law that allowed private insurers to manage Medicare. This was to slow down how much it was paying out for Medicare and to give beneficiaries more choices. However, the government soon found troubling practices in the budding program. Some companies actively recruited the healthiest seniors to keep their costs down. There were even stories that some would place their enrollment offices on upper floors in buildings with no elevators... If a senior could climb the steps, they could enroll. So the feds reduced payments to Medicare health plans. Enrollment declined for about four years in a row. Then, in 2003, President George W. Bush signed the Medicare Modernization Act into law. It was the biggest overhaul of Medicare since the program began in 1965... And it renamed the program Medicare Advantage, or "MA" as we'll call it. Specifically, the law raised the payment to insurers for sicker beneficiaries, while paying less for healthier ones. This is called "risk adjustment." MA has been wildly popular. Given the choice, people eligible for Medicare have consistently chosen to have their entitled benefits administered by the private sector. Today, we'll break down some of the key things about Medicare that you may not know. And we'll look at why the companies involved are about to get a big boost...
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Because the private sector runs MA, it's more efficient and easier to use. It can offer more benefits at a lower cost. An MA plan can save you tens of thousands of dollars during your retirement. MA plans offer everything in your entitled Medicare benefits, combined with prescription drug coverage and often vision, dental, and even fitness programs. Some even offer financial support for hearing aids. All of these things are valuable when we reach our "golden years." In a 2019 study by the Kaiser Family Foundation, more than two-thirds of people enrolled in an MA plan had both dental and vision benefits: 78% had access to a vision benefit, and 67% were able to access dental benefits. Additionally, 72% of people had access to a fitness-club benefit. This helps to keep seniors active and engaged socially in their communities. It also increases our healthspan – the amount of time you have at nearly full health, not battling disease or decline. Take a look... MA is easier for enrollees, too. Rather than coordinate all your Medicare "parts" and multiple little plastic cards, why not just have one? That's what MA does for people on Medicare. MA plans don't just come in one flavor, either. Seniors have many different choices for how extensive or expensive a plan they would like. In 2022, the MA program offered an average of 39 options to Medicare beneficiaries across most of the U.S. These plans offer everything from $0 premium plans (meaning you don't need to pay extra money to enroll) to higher-cost plans which have little to no copay or other fees when you go to the doctor. Folks newly eligible for Medicare often find MA easier to use than traditional Medicare. The program has a similar feel to the employer-sponsored health benefits many of us have received during our working years. And as you can see below, more and more seniors are turning to MA... Now, as of January, about 30 million people – or roughly half of eligible people – get their Medicare benefits through the private sector. That's up from 19% in 2007. Importantly, this wave is going to keep growing. You've heard it many times before. America's aging population will have a tremendous impact on almost every aspect of the economy in the coming decades – from cruise ships to gambling to travel and, yes... to health care. A simple way to see this is with one of our favorite charts at Prosperity Investor. It shows the number of live births per year for the last hundred years or so. Take a look... Notice the part of the curve we've highlighted. People born at that point would have turned 65 last year. During the next five years, the most people in U.S. history will reach age 65 and become eligible for Medicare. This upward trend has fueled the growth of Medicare-eligible seniors for the past 10 years... and created a wave of new potential MA subscribers. One of almost every two people right now will choose an MA plan. That's a huge pool of potential customers. What's more, the Congressional Budget Office, the federal department responsible for estimating costs for federal programs, believes 61% of people will get their Medicare benefits from private companies by 2032. So, not only is the total pie getting bigger... but the MA slice of the pie is growing, too. MA programs have taken the bureaucratic nightmare that Medicare can be... and created a flexible system that can help people when they need it most. And as this shift happens, it will mean growing revenues for the insurance companies that participate. Here's to happy and healthy returns, Dr. David Eifrig, Thomas Carroll, and John Engel
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