Medicare Advantage penetration is on the rise. As overall Medicare healthcare costs continue to increase and out-of-pocket costs for Medicare seniors climb along with them, L.E.K. Consulting expects enrollment growth to yield 47% penetration — just over 37 million members — by 2025 (see Figure 1), and up to 70% penetration sometime between 2030 and 2040.

There are five key tailwinds driving the growth of Medicare Advantage:

  1. Aging population ― Aging baby boomers and increased life expectancy are driving faster growth among the 65+ population relative to the U.S. overall.
  2. Original Medicare cost concerns among seniors ― Healthcare costs, especially out-of-pocket costs associated with Original Medicare, are growing.
  3. Increased familiarity with and need for managed healthcare products ― Newly aged-in seniors, many with age-related chronic conditions, are already accustomed to managed healthcare products from their employer group insurance.
  4. Expanded Medicare Advantage geographic coverage and greater plan choice ― The number of available Medicare Advantage plans increased nearly 20% in 2019, driven primarily by expansion into new counties.
  5. Increase in innovative nonhealth Medicare Advantage benefits ― Medicare Advantage plans have the flexibility to offer more innovative benefits; national expansion of the Value-Based Insurance Design model, coupled with a trend toward including nonmedical long-term care benefits, could lead to better value for enrollees.

L.E.K. has extensive experience helping payers, providers and investors succeed with Medicare Advantage. We assist our clients every step of the way, from launch to annual refinement, growth and operational improvement (see Figure 2).

Case study: We developed and implemented a comprehensive growth strategy for the Medicare Advantage business of a Fortune 50 managed care organization. After the client implemented the plan, it added 250,000 new Medicare members, generating approximately $2.4 billion in incremental annual revenue. The implementation of our plan also contributed to a significant increase in the client's market capitalization.

Case study: We overhauled the $5 billion Medicare Advantage business of one of the nation's largest health insurance companies, including its strategy, product positioning, market selection, infrastructure, organizational structure, and operations. After the client implemented our changes, the business went from losing $40 million to achieving an operating gain of approximately $100 million. 

For more information, contact healthcare@lek.com.

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