How Medicare Advantage Plans Can Reduce Cost with Care Management

Medicare Advantage (MA) plans are at a pivotal moment. First launched in 1997, these managed care alternatives for Medicare beneficiaries were designed to reduce costs and improve outcomes.

Current market shifts, quality regulations, cost pressures and surging demand require MA plans to maximize opportunities. This means leveraging targeted, evidence-based strategies, product designs, and efficiencies to prepare for the swell of seniors in the next decade.

Medicare Advantage strategy: Build on success

Increasing penetration of Medicare Advantage plans has significantly impacted seniors' health insurance.

Figure 1: Total Medicare Advantage Enrollment, 2007-2024. Source: KFF.

There are over 32 million MA enrollees in 2024, covering 54% of eligible Medicare beneficiaries. This translates into $462 billion of total net Medicare spending. 

As shown in Figure 1, MA's trajectory mirrors the surge of eligible seniors in the coming decade. This includes the attractiveness of low-premium, value-added health insurance.

Analysis has found that Medicare Advantage plans have achieved improved cost, quality, and member satisfaction outcomes: 

• MA beneficiaries, on average, save more than $2,500 annually compared to fee-for-service (FFS)
• MA enrollees have fewer readmissions, fewer preventable hospitalizations and lower rates of high-risk medication use than people in FFS
• MA outperformed FFS on 10 out of 11 key HEDIS measures
• MA beneficiaries receive more preventive care and screenings than FFS
• MA plan participants are loyal — only ~10% change plans annually

Building on these successes is critical for Medicare Advantage plans. Current challenges require it.

Medicare Advantage strategy: Respond to this moment

Several challenges are intermingling to make this a pivotal moment for Medicare Advantage plans. Within these are opportunities to respond to market demand. This will mean using technology to drive efficiencies and deliver more value to members and providers. 

Growing demand amid cost and margin pressures

Medicare Advantage plans were designed to reduce costs and improve outcomes. Participation in MA plans has risen steadily. It is expected to grow further as the US senior population surges to 71 million in the coming decade. 

In addition to preparing for millions of more beneficiaries, MA plans are driven to maintain a margin-positive business. This is more challenging given double-digit cost increases year over year.

How MA plans are paid is also changing. CMS is refining payment models and risk adjustments based on population trends.

In response to these pressures, MA plans are taking decisive action, including increasing coverage costs and leaving specific markets.

In 2025, about 1.3 million beneficiaries will need to change coverage as their current plan will not be available. Several major insurers are ending Medicare Advantage coverage in certain markets due to profitability or reducing plan benefits. 

Nine MA insurers will not be offering any MA general enrollment plans.

Quality performance focus shifting

Medicare is increasing its emphasis on clinical and health equity measures. It’s looking at overall effectiveness and outcomes through the Health Outcomes Survey. 

McKinsey analysis shows that Star Ratings have been effective at: 

• Increasing cancer screenings
• Improving medication adherence
• Closing care gaps for preventative measures, such as flu shots and diabetic eye exams 

For the first time in 2024, CMS collected data to benchmark the Health Equity Index (HEI)‘s performance. This prioritizes member engagement around social risk to maximize performance for rating year 2027.

In addition, maintaining high Star Ratings still influences how members choose MA plans. 

The 2023 McKinsey Medicare Shopping Survey found 50% of beneficiaries said a plan’s Star Ratings were a top feature considered. Nearly 24% said they were the most important. 

Shifting plan types

Enrollment trends in Medicare Advantage are shifting significantly. According to KFF, more than 6.6 million Medicare beneficiaries are enrolled in Special Needs Plans (SNPs) in 2024, doubling since 2019. SNPs now account for 20% of total Medicare Advantage enrollment. 

While 88% of SNP enrollees are dually enrolled in both Medicare and Medicaid (D-SNPs), 10% are enrolled in C-SNP plans for severe chronic or disabling conditions.

Population changes, profit pressures, and market drivers create a clarion call for Medicare Advantage plan leaders to shore up their competitive position. This includes optimizing for MA reimbursement and value-based payments. 

Plans can tap into technology, care management standards, and innovative approaches to meet this moment by maximizing care coordination, efficiency, and clinical outcomes. 

Medicare Advantage strategy: Optimize payment components 

The Centers for Medicare & Medicaid Services (CMS) announced a 3.7% increase in the CY 2025 rate to more than $16 billion.  Medicare Advantage plans will receive $500 to $600 billion in payments. 

These health plans must strategize how they will allocate those funds effectively toward five goals:

• Balance investment in benefit enhancements with controlling premiums 
• Control overall administrative cost
• Manage risk-stratified populations
• Perform well in prioritized clinical and health equity measures as part of Quality Bonus payments
• Create a competitive advantage through differentiated services

Ultimately, MA plans want to optimize the components of monthly payments, including benchmarks, bids, rebates and quality payments. Care management services support these objectives.

Medicare Advantage strategy: Leverage advanced care management to achieve objectives

Advanced care management programs, such as Chronic Care Management, Transitional Care Management, and Remote Patient Monitoring, elevate a plan’s past experience and current capabilities to address each strategic area critical to this moment. 

Increase quality payments related to Star Ratings

MA plans are paid a capitated rate tied to CMS quality measures. Advanced care management programs support efforts aligned with performance trends. These include clinical care effectiveness, social determinants of health assessment, and addressing care gaps. 

Plans that achieve four- or five-Star Ratings receive quality bonuses that can boost benchmark payments by 3-5%. Higher Star Ratings not only trigger quality bonuses but inform consumer choice.

Increasing a plan’s quality stars equates to larger rebates:

• 3 Stars or fewer: Plans receive 50% of the benchmark bid difference as a rebate
• 3.5-4 Stars: Plans receive 65% of the benchmark bid difference as a rebate
• 4.5-5 Stars: Plans receive 70% of the benchmark bid difference as a rebate

Care management services, like those shown in Figure 2, can improve Part C Star Ratings, translating into higher quality payments and rebates.

Figure 2: Potential impact advanced care management programs can have on Star Rating quality measures.

Invest rebates in value-added services

Because most Medicare Advantage plans offer supplemental benefits such as dental and vision coverage, they’ve become table stakes to customers. And, while MA beneficiaries tend to be loyal to their plan, shifting costs and benefits are causing them to take a harder look at their choices each year.

Nearly 25% of beneficiaries choose a plan because it offers more benefits. MA plans can use any rebate monies to attract new enrollees and provide a critical market differentiator. 

When an MA plan’s bid is lower than the established benchmark, profits over a maximum of 15% can be invested into beneficiary benefits. This includes advanced care management services. 

As suggested in a McKinsey report on the shift of care to home settings, plans can reinvest higher CMS rebates into additional plan benefits in a self-reinforcing cycle. Advanced care management supports McKinsey’s recommendations to use rebates to:

• Build better relationships with providers
• Enhance member engagement 
• Address care gaps 
• Identify members with social risk factors
• Provide a high-quality member experience

Support regional and Special Needs Plan benefits

With a shift from general MA plans to local or special needs plans, product design targets the specific needs of regional populations. This can mean grouping beneficiaries by disease or social risk factors.  

Figure 3 highlights the change in supplemental benefits within SNPs. Remote technologies, in-home support, and caregiver support show that new, targeted benefits are gaining traction.

Remote Patient Monitoring, Transitional Care Management, and a disease-focused version of Chronic Care Management can deliver added value. 

Figure 3: Trends in supplemental benefits offered by Special Needs Plans. Source: KFF. 

Assert accurate HCC and risk scores

Ensuring that MA plans have adequate information to assign Hierarchic Condition Categories (HCC) is critical to receiving accurate capitated payments.

Advanced care management programs are built upon evidence-based standards. They embed critical evaluations and risk assessments within their workflow. This provides ongoing information needed to maintain and support HCC designations. 

Advanced care management meets this moment

Medicare Advantage plans have a long history of providing care coordination and beneficiary support. But, in this time of competing market and cost forces, advanced care management programs such as  CCM, TCM, and RPM can provide critical differentiation. They can lessen the need for high-cost acute care, slow disease progression, and improve chronic disease management.

ThoroughCare enables care management through evidence-based standards, workflow, and analytics

ThoroughCare is a comprehensive care management platform supporting: 

• Full workflow for enrollment, care planning, screenings, and assessments
• Educational resources to help members understand their conditions 
• Enhanced communication, including two-way secure text messaging
• Care coordination between primary care physicians, clinicians, and specialists
• Automated documentation with AI-driven insights from member call transcripts 
• Data analytics and population data management 

Key questions answered

What trends are driving Medicare Advantage plans to innovate in 2025?

Several trends are causing MA plans to look for ways to become more efficient and competitive while ensuring their capitated rate reflects their beneficiary risk levels. These trends include:

• Growing demand amid cost and margin pressures: As MA plans prepare for millions more beneficiaries, they’re driven to maintain a margin-positive business. Additionally, how MA plans are paid is changing as CMS refines payment models and risk adjustments based on population trends.
• CMS's quality performance focus is shifting: Medicare is increasing its emphasis on clinical and health equity measures, as well as healthcare effectiveness and outcomes through the Health Outcomes Survey. 
• MA plan types are shifting: Enrollment in general Medicare Advantage plans is evolving as Special Needs Plans have doubled since 2019, accounting for 20% of total Medicare Advantage enrollment. 

Population changes, profit pressures, and market drivers create a clarion call for Medicare Advantage plan leaders to shore up their competitive position. They should focus on optimizing reimbursement and attracting and retaining customers. 

How can care management help Medicare Advantage plans improve finances?

Ultimately, Medicare Advantage plans want to optimize the components of monthly payments, including benchmarks, bids, rebates, and quality payments. Advanced care management can support these objectives by:

• Increasing quality payments related to Star Ratings
• Investing rebates in value-added services
• Differentiating through population- and disease-focused advanced care management
• Offering valuable supplemental benefits in regional and Special Needs Plans

Plans can tap into technology and care management standards. They can explore maximizing care coordination for better efficiency and outcomes.