What does recently passed legislation referred to as MACRA (Medicare Access and CHIP Reauthorization Act of 2015 ) mean for the Medicare Supplement industry? While the impact on Medicare Supplement doesn't occur until 2020, individual carriers are in a position now to plan a course to proactively mitigate risks or exploit opportunities.The Medicare Supplement market will split into two distinct markets
There will be those that are newly eligible for Medicare in 2020 and later (NE group) who don't have access to Plans C/F and the non-newly eligible (NNE group) that will still have access to Plans C/F. Why is this important? While the NNE group will shrink over time, it will still comprise a significant segment of the market in the early 2020s.
Overall loss ratio experience should be better for a few years following MACRA implementation
How is this possible? Consider that for new business sold in the early 2020s, the NNE group that purchases Plans C/F will no longer consist of 65-year-olds who qualify for open enrollment without medical underwriting. Plan C/F morbidity will improve while Plan D/G morbidity will increase. For as long as Plans C/F make up a significant volume (and keep in mind this is older individuals at the higher rate levels), the overall loss ratio levels should be lower, all else being equal.
In spite of more favorable experience, however, retention dollars are expected to be lower for all years following MACRA implementation
While overall loss ratio experience may improve, the amount of retention dollars (premium less claims) will be lower, given an increased exposure to lower benefit Plan D/G coverage that doesn't include the Part B deductible. The overall impact through 2025 is likely to be in the billions of dollars.
To learn more about how MACRA will impact the Medicare Supplement market, read my article "Will the Medicare Supplement market have "2020" vision in the world of MACRA?"