Medicare Advantage Enrollment: Growth Expectations for Start-Ups

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Enrollment growth is one of-if not the-most important consideration in the early years of a start-up Medicare Advantage (MA) organization (MAO). Enrollment impacts an MAO’s revenue and profitability and is a key driver to becoming successful. For these reasons, enrollment projections are a critical component of any new MAO’s financial pro forma. However, enrollment assumptions are often difficult to develop, especially for a new MAO without any prior experience.

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But there are ways to better understand enrollment potential for new organizations. To better inform enrollment expectations for new MAOs, Milliman, analyzed historical enrollment experience for 109 parent organizations new to the MA market from 2007 to 2018, including by population type and size.

This article summarizes the results annually from an MAO’s initial start-up year to its seventh year of operations (where available) and segments this experience by population type and size. For new MAOs, this past experience may be useful in developing future projections for enrollment growth.

Overall enrollment increases as plans mature

To perform this analysis, Milliman reviewed 2007 to 2018 enrollment by duration across 109 parent organizations entering the MA market between 2007 and 2017 (organizations with only one year of experience, which limits the analysis to only organizations entering the MA market through 2017 were excluded). We calculated the average enrollment as well as the 25^th, 50^th, and 75^th percentiles for each duration year. Note that it is important to consider the credibility of each data point. As we separated the data into various segments, the number of organizations and corresponding credibility of each data point decreased.

What Milliman found is that average enrollment increased consistently as organizations matured, as shown in Figure 1. In fact, average enrollment nearly tripled from year 1 to year 2. CMS restricts new organizations from expanding their service areas and plan types in their second years.

Given that, the observed enrollment growth in year 2 suggests organizations grew their membership within their initial footprint and plan types. New organizations are permitted to expand their service areas in year 3 and beyond with CMS approval. Subsequent average enrollment continued to increase, with the average enrollment in year 7 reaching nearly nine times the initial enrollment.

Initial enrollment varied widely, with smaller organizations (represented by the 25th percentile) achieving average enrollment of 177 members and larger organizations (represented by the 75th percentile) achieving average enrollment of 1,102 members in the first year. This gap between the 25th and 75th percentiles was maintained as organizations matured, with enrollment at both percentiles increasing with duration.

General enrollment organizations achieved the largest initial enrollment

Looking at results more granularly, we are able to see trends by population type. General enrollment (GE) organizations achieved the highest initial enrollment, as shown in Figure 2, and were significantly larger than Dual Special Needs Plan (D-SNP), Institutional Special Needs Plan (I-SNP), and Chronic Special Needs Plan (C-SNP) organizations.

Average enrollment for all population types increased with maturity. GE and D-SNP organizations realized average enrollment in year 7 that was roughly nine and 11 times their initial enrollment, respectively. I-SNP and C-SNP organizations achieved much lower initial enrollment, likely due to highly targeted population approaches. Both I-SNP and C-SNP organizations more than doubled enrollment from the initial year to third year, and I-SNP organizations more than quadrupled enrollment by the seventh year.

Small organizations achieved significant growth with maturity

We also summarized the results looking at each organization as defined by its starting size. Small organizations increased average enrollment by a factor of over 20 from year 1 to year 7. Medium and large organizations increased average enrollment at a much slower rate of about six-fold, with large organizations experiencing a slight tapering of average membership in year 7.

These differing growth rates result in average enrollment for small organizations nearly catching up to average enrollment for medium organizations by year 7. Large organizations, while growing at a slower rate, achieved an average year 7 enrollment that is about four and three times the average enrollment of small and medium organizations, respectively.

Conclusion

Given the results of the analysis, one can conclude it is possible to achieve sizeable enrollment early on. However, there is a wide range around historical enrollment experience at all durations. New MAOs need to consider the type of population the plan is targeting when forecasting year 1 enrollment and subsequent growth. Organizations beginning their operations with significant enrollment stand to gain a larger market share in the coming years than organizations initially coming to market with smaller enrollments.

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The historical experience presented in this analysis may assist potential entrants into the MA market in developing enrollment assumptions for pro forma statements, state licensure applications, and internal budgets. MA entrants should have realistic expectations of enrollment projections, as we have often observed new MAOs projecting large starting enrollments and subsequent enrollment growth that do not materialize.

Successful MAOs will set realistic enrollment assumptions and implement organizational activities, target premiums, and benefit plans supporting these enrollment targets. This sounds simple but, in practice, complete alignment across an MAO is required to project and achieve sizeable and realistic enrollment growth.

Caveats, qualifications, and limitations

Kelly S. Backes and Julia M. Friedman are actuaries for Milliman, members of the American Academy of Actuaries, and meet the qualification standards of the Academy to render the actuarial opinion contained herein. To the best of our knowledge and belief, this paper is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices.

The material in this paper represents the opinion of the authors and is not representative of the views of Milliman. As such, Milliman is not advocating for, or endorsing, any specific views contained in this report related to the Medicare Advantage program.

The information in this paper is designed to provide historical Medicare Advantage enrollment experience and discussion of enrollment impacts on Medicare Advantage organization performance. It may not be appropriate, and should not be used, for other purposes.

The validity of certain comparisons provided in this paper may be limited, particularly where the number of organizations, enrollment, and/or credibility in data segments is low. Additionally, future enrollment performance for any one organization will vary from the historical experience provided in this report.

In completing this analysis we relied on information from CMS, which we accepted without audit. However, we did review it for general reasonableness. If this information is inaccurate or incomplete, conclusions drawn from it may change.

Kelly S. Backes, FSA, MAAA, is principal and consulting actuary with the Chicago-Milwaukee practice of Milliman. Julia M. Friedman, FSA, MAAA, is a consulting actuary with the Chicago-Milwaukee practice of Milliman.