The Medicare Advantage (MAPD) marketplace is growing as memberships and revenue potential increase. At the same time, it is marked by risks associated with healthcare reform, continuing cost pressures, and healthcare consumerism. To operate and compete successfully, payers will have to find new and better ways to sharpen their strategies, integrate systems, increase collaboration and optimize processes.

1. • Cognizant 20-20 Insights
Managing Risk: Maximizing
Opportunities in the MAPD Market
The impending rise in enrollment makes the Medicare Advantage
market an attractive growth opportunity. However, payers will
need more tightly integrated systems and highly optimized
business processes to operate profitably in this market.
Executive Summary
New revenue potential from a steadily growing
member base makes the Medicare Advantage
(MAPD) marketplace very attractive to payers.
Yet it is also a market fraught with new business
risks emerging from the confluence of healthcare
reform, continued cost pressures and the rise of
healthcare consumerism.
Payers must be prepared to mitigate these risks
with powerful analytics and reporting capabilities;
streamlined, consumer-centric processes; and
cost-effective yet flexible platforms (See Figure
1, next page). Lacking these abilities, they will be
challenged to make accurate cost projections and
implement the process improvements necessary
to operate profitably in today’s MAPD market. This
white paper details the business risks in the MAPD
market, discusses their causes, then examines the
strategies and business processes payers require
to reduce risk and win in this market.
cognizant 20-20 insights | february 2014
The MADP Market: Opportunity
Laced with Risk
The MADP market is an important growth area for
many payers due to the sheer volume of potential
plan members (see Figure 2). More than 30 million individuals will become eligible for Medicare
during the next 17 years.1 Approximately 30% of all
Medicare-eligible consumers, or 15 million members, were enrolled in Medicare Advantage plans
as of September 2013.2 That’s up from 5.1 million
members in 2003, when the Medicare Advantage
program was introduced in its current form.3
Although the growth opportunities are attractive,
operating competitively and sustainably in this
market is challenging for numerous reasons.
Increasing Cost Pressures
• The Affordable Care Act (ACA) requires the
Centers for Medicare and Medicaid (CMS) to
reduce reimbursements to MADP payers.
Though the reduction percentage is in flux and
politically sensitive, it could be as much as 3%.

2. MAPD Challenges and Approaches
Rate/Pricing Risks
are Growing.
Cost Pressures.
Adverse effects on
accountable care
organizations from
ACA benefit mandates.
Quality ratings will affect
plan benchmarks and
financial performance.
Challenges
MAPD
Approaches
• Increase renewals and improve conversion rate.
• Reduce acquisition costs.
• Reduce process complexity.
• Use analytics to create better member
experience and wellness programs.
• Process controls to drive quality.
• Moving to value-based care.
• Better risk adjustment – capture risk codes.
• Intensive intervention – medical management.
• Improve star ratings.
Regulations, cost pressures and demands for higher quality add up to increased business and financial risk for payers operating MAPD plans. Payers must deploy member-facing strategies and revamp business processes to create
competitive advantages while also mitigating MAPD market risks.
Figure 1
• CMS
At least one study has shown that when these
new benchmarks are in place, overall MAPD
plan payments will be reduced from 114% of
spending in traditional Medicare to 102%.4
That said, benchmarks and reimbursements
will fluctuate from county to county, from 5%
less than Medicare FFS costs to 15% more than
those costs.5
benchmark payment rates are set to
decrease relative to Medicare fee-for-service (FFS) costs under the ACA (Figure 3,
page 3). These rate reductions will vary as
CMS phases in the new benchmarks. From 2013
to 2016, CMS will base the benchmarks on a
percentage of new FFS Medicare rates in each
county blended with pre-ACA payment levels.
Projected Change in Medicare Enrollment 2000-2050
100
92.8
88.3
80.8
10%
8%
80
63.9
60
6%
47.5
40
4%
3.0%
2.4%
1.8%
20
2%
0.9%
0.5%
0%
0
2000
2010
2020
2030
2040
— Medicare enrollment
(in millions)
■ Average annual growth
in enrollment
2050
The growth in Medicare enrollees represents prospective growth for MAPD plans. Payers must understand the
increased business risks that come in tandem with the MAPD market’s growth potential and how to mitigate them.
Source: Based on CMS.gov data.
Figure 2
cognizant 20-20 insights
2

3. Fee-for-Service Reimbursement Rates
108%
106%
104%
102%
100%
98%
96%
94%
92%
90%
88%
107%
105.90%
103.60%
101.60%
96.60%
2011
2012
2013
2014
2015
95.60%
2016
94.50%
2017
Fee for Service (FFS) Reimbursement Rates by Year
CMS is reducing its benchmark payment rates so that MAPD reimbursement rates will be close to ­ and sometimes
—
under — Medicare fee–for-service reimbursement rates in many service areas.
Source: Based on CMS.gov data.
Figure 3
• MAPD
plans must meet a retrospective
85/15 medical loss ratio (MLR). CMS requires
plans to return any reimbursement amounts
exceeding the 15% limit on administrative
spending and profit levels. CMS can prohibit
plans failing to meet MLR requirements in
multiple years from enrolling new members
and potentially disqualify them from participating in the MAPD market.
insufficient rates, resulting in an underfunded
plan.
• The financial consequences of an inaccurate
bid are substantial. The bottom line is that plan
reimbursements are likely to decrease while
the health demographics of MAPD members
indicate they will need additional services.
Controlling the costs of service delivery while
ensuring the highest quality member experience
will be a challenging balancing act. Failing to
accurately forecast these expenses will negate
a plan’s earning potential, even with increased
membership (see Figure 4, next page).
Rate/Pricing Risks are Growing
• CMS generally releases regulatory informa-
tion in the spring and requires filings by
June. This results in payers filing premium
rates and benefits designs for the coming plan
year many months ahead of plans’ autumn open
enrollment periods. Payers are then locked into
the rates, regardless of the health conditions of
newly enrolled members. This makes managing
risk scores critical. Plans essentially rely on
historical data to make population health and
rate predictions. Medical costs are notoriously difficult to predict, and the margin of error
rapidly grows wider the farther into the future
the predictions must go.
Quality Ratings’ Effect on Plan
Benchmarks and Financial
Performance
• The CMS Five-Star Rating system for MAPD
enables plans to achieve bonus payments
when scoring a “4” or greater (see Figure
5, next page). These scores are based on a
wide range of criteria, from chronic condition
management to member satisfaction, to
customer service. In 2013 and beyond, quality
scores also determine what portion of plan
savings may be returned as rebates to plan
members. These rebates are now set at 50%
of the difference between a county benchmark
and a plan’s bid (down from 75%). Plans with
high-quality scores can receive greater rebates.
• Federal
desk reviews are also becoming
more comprehensive and sophisticated. CMS
requires payers to respond quickly to audit
issues. It’s crucial that payers support their
rates, or make rate corrections swiftly and with
accurate data. Otherwise, they risk quoting
cognizant 20-20 insights
3

4. MAPD Members in High-Cost Counties
Distribution of Counties, Total Medicare Beneficiaries and
Medicare Advantage Enrollees by Counties’ Costs, 2013
■ Lowest-cost counties
■ Second quartile
■ Third quartile
■ Highest-cost counties
Counties
Total Medicare
Beneficiaries
Medicare Advantage
Enrollment
If trends continue, most Medicare Advantage enrollees will be in the highest-cost counties. When all ACA payment
reduction requirements are complete, benchmarks for MAPD plans serving these counties will be at approximately
95% of Medicare FFS costs. Achieving optimal operating efficiencies and high CMS star ratings that boost
benchmark payments will be critical to maintaining viable margins for MAPD plans.
Figure 4
• CMS has indicated it will encourage MAPD-
eligible consumers, as well as members of
lower rated plans, to seek out highly rated
plans.6 Plan members may switch to Five-Star
plans in their service area at any time. The CMS
may terminate MAPD plans failing to meet a
minimum of a 2.5 star rating for several consecutive years.
Adverse Effects from ACA Benefit Mandates on
Accountable Care Organizations
Achieving Sustainable Profitability in
the MAPD Market
Payers can mitigate the pricing, risk, compliance
and consumerism pressures outlined earlier to
operate competitively in the MAPD marketplace
with certain technological and operational capabilities (See next page).
CMS Five-Star Rating
CMS 5-Star Rating
• Advantage plan member co-payments must
be equal or lower to FFS Medicare charges for
certain services, and there are no applicable
beneficiary rebates for prescription drugs
through decreasing drug costs and member
cost sharing. Further, payers are left out of
gain-sharing arrangements that ACOs enter
into directly with CMS.
23.20%
7.20%
68.60%
1.00%
• After
2013, the business risk of operating
Special Needs Population (SNP) plans will
increase because payers lose the authority
to change the types of members enrolling in
those plans. What’s more, such plans must be
certified by the NCQA, adding to compliance
requirements. Payers must be ready to react
to new changes from CMS about how risk
scores are handled for SNP populations, which
may include a frailty adjustment in the CMS
payment methodology for members eligible for
both Medicare and Medicaid.
cognizant 20-20 insights
< 3.0
4.0- 4.5
3.0-3.5
> 4.5
Most payers are not realizing the full benefits of the
CMS quality bonus payment program, with almost 70%
of MAPD plans failing to reach the Four-Star rating
required to achieve a benchmark bonus. Rebates
increase as well for higher rated plans.
Figure 5
4

5. • Analytics.
Payers must mine the data they
collect for more insights about serving populations, pricing products and improving
operations.
mitigate the business risk built into making
bids for care that will be delivered two years
into the future. Increasing business process
automation nets payers additional value by
improving accuracy, making employees more
productive and supporting enhanced member
services.
>> Predictive analytics can transform commu-
nity health population data into insights that
will help payers efficiently prepare accurate,
data-driven bids and responses to CMS audit
queries. The analytics can help payers create
a comprehensive model for better risk management through more accurate risk scores
and pricing estimates, mitigating some of the
risk inherent in the CMS bidding timelines.
>> Member-facing activities, such as patient en-
gagement and health programs, deliver true
competitive advantage in the MAPD marketplace and should be priorities. Non-core
“commodity” administrative and claims processing activities can be entrusted to experienced service providers using industry best
practices and a variable, volume-based operating cost model to make these expenses
predictable.
>> Analytics can also pinpoint areas requiring
process improvement, from internal clinical
and administrative functions, to provider
performance issues, to patient engagement
and member health maintenance initiatives.
These will be key to meeting CMS quality rating criteria.
>> Using
lower-cost, highly trained and experienced globally based clinical and administrative labor can help payers develop a cost
structure appropriate to the extremely costsensitive MAPD market.
• Integrated systems. MAPD plans must increase
their bottom line results. Accomplishing this
requires the ability to integrate the administrative and clinical data now locked in separate
silos to gain greater visibility into processes and
assess their impact on financial results.
>> Integrating medical management with claims
processing operations increases financial
forecasting accuracy. Payers can then confirm a claim was properly preauthorized and
that all appropriate services were rendered
to the member before the claim reaches the
adjudication process. Visibility into the medical management decisions and the services
rendered enables the payer to monitor for
accurate CMS reimbursement and use the
data to increase financial forecasting accuracy on future rate filings.
>> World-class delivery and operations capabili-
ties can reduce the cost of service, improve
STAR ratings and support member incentive
programs.
• A
robust, compliance-centered platform.
MAPD platforms must connect processes,
increase efficiencies, and create more comprehensive views of members from clinical
and financial perspectives so payers are better
equipped to manage their business.
>> CMS
frequently adjusts and enhances its
highly specific requirements for payers offering MADP plans. An MAPD platform must
be based on industry-leading components or
a single strong Medicare platform that offers
the flexibility to support the resulting new
benefit plan configurations and provider
network management. It must have a compliance model at its core and incorporate
business objects and rules so that adjusting
one object propagates the required updates
throughout all affected systems. Fast compliance with new regulations and procedures
helps reduce vulnerabilities.
>> Plans must holistically integrate processes,
such as sales and marketing and enrollment,
to gain 360-degree views of members. A
comprehensive view of member health and
resource use helps support personalized
member health and patient engagement programs that enhance customer experiences
and improve quality rankings. These create a
strong marketing story for retaining existing
members and attracting new ones, including
converting current members to MAPD plans
as they become eligible for them.
>> MAPD
platforms should incorporate a repeatable change implementation framework
and asset set to ensure fast, reliable change
management.
• Process optimization. Eliminating waste and
>> The
platform must support industrialstrength integration with CMS for filings, responses to queries and to better prepare for
unnecessary costs with streamlined workflows
and processes creates the financial flexibility required to meet MLR requirements and
cognizant 20-20 insights
5

6. >> Build
compliance with laws and regulations. This
level of integration also helps streamline
enrollment functions, reimbursements and
billing reconciliation.
process flexibility to support unique
MAPD needs, including fast compliance with
frequent changes requested by CMS.
>> Define
a clear process for enacting plan
changes and new enrollment applications,
including those submitted on paper or faxed.
>> The platform must offer visibility into all func-
tions to support an integrated, comprehensive view of members and member-centric
services. It should integrate with analytics
data to inform wellness, disease management and patient engagement programs.
>> Implement an enrollment processing system
that consistently delivers reliable and well
integrated data entry, data validation, and
data communications functions.
>> The platform must have the capability to pro-
>> Make information accessible throughout the
actively flag indicators, including when members don’t take their prescriptions or follow
dietary requirements. To that end, the platform must support digital health tools, such
as in-home monitors and mobile health apps.
Gaining an Advantage in the
MAPD Marketplace
entire enrollment workflow.
>> Execute process controls that drive quality
and enable monitoring of daily work activities and results.
4. Improved cost management.
>> Reduce
member acquisition costs even as
revenues and market share increase, potentially to top-tier MAPD provider levels.
With risks and how to mitigate them made clear,
payers must evaluate whether they have the
necessary capabilities to compete successfully
in the MAPD market. Systems, processes and
technology must all be integrated if payers are to
achieve these advantages:
1. Greater focus on members/custom plans for
seniors.
>> Streamline and tailor end-to-end acquisition
and on-boarding processes for Medicare individual consumers — boosting sales while
driving down sales costs.
5. Greater collaboration with providers.
>> Develop analytics-based wellness and care-
>> Improve coding of risk parameters.
>> Identify areas for streamlining revenue man-
>> Increase
>> Create clear visibility into entire workflows
management programs, as well as custom
offerings.
agement and medical management functions.
renewals and improve conversion
rates.
and resulting data and reporting.
>> Reduce
process complexity by implementing a customer relationship management
platform with a multi-channel sales and enrollment solution supporting both Medicare
individual telesales and agent-driven activities.
2. Targeted member outreach programs.
>> Utilize
outbound telemarketing campaigns
to consult on products, up-sell and cross-sell
products, generate sales leads and complete
sales from an “over-65” (O65) individuals
prospect list.
>> Perform
customer consultations, answer
questions and complete sales on in-bound
calls for O65 individual members.
3. Simplify and drive value across the entire
supply chain.
>> Streamline
processes by channeling all
sources of new enrollment information into
a common entry point.
cognizant 20-20 insights
6. Proactive risk management.
>> Speed compliance and reduce business risk
by decoupling the business process from the
targeted core administrative system and applying a consistent set of quality controls
and data validations.
In the MAPD market, IT investment has not been
a priority because profits have been capped. But
now, managing MLR and quality requirements
calls for IT solutions that break down data silos,
create single, integrated views of members and
streamline marketing, enrollment, compliance
and financial capabilities. Payers must evaluate
the financial implications of buying or building
these systems versus partnering with an experienced provider that offers a bundled, turnkey
solution with end-to-end visibility, enhanced
capabilities, and a single point of accountability
for all MAPD processes and services.
6

7. Succeeding in the MAPD market
Payers in the MAPD market must appreciate the
increasing business and financial risk of serving
this market, even as they reach out to potentially
millions of new members.
The keys to success will be integrating and
streamlining processes, from sales and marketing
through claims processing, on a flexible platform;
using data more effectively in bid submissions
and risk mitigation; and realigning resources to
high-value, member-centric activities. Offering
preventive care, enabling better collaboration
with providers and proactively detecting health
risks with analytics will help payers better manage
business risk and control costs. These abilities will
also permit payers to meet the quality and service
demands of CMS and health consumers, and thus
grow a sustainable MAPD business.
Footnotes
1
A Data Book: Health care spending and the Medicare Program,” Medicare Payment Advisory Commission,
June 2013, pp. 24.
2
Medicare Advantage 2014 Spotlight: Plan Availability and Premiums, Henry J. Kaiser Family
Foundation, Nov 25, 2013 | Marsha Gold, Gretchen Jacobson, Anthony Damico and Patricia Neuman,
http://kff.org/medicare/issue-brief/medicare-advantage-2014-spotlight-plan-availability-andpremiums/#MarketDynamicsTurnover, accessed 11/26/13.
3
Total Medicare Advantage Enrollment figures, Total Medicare Beneficiary figures, Kaiser Family Foundation,
kff.org/state-category/medicare, accessed 11/26/13.
4
Realizing Health Reform’s Potential. The Impact of Health Reform on the Medicare Advantage Program:
Realigning Payment with Performance. Brian Biles, Giselle Casillas, Grace Arnold, and Stuart Guterman;
October 2012, The Commonwealth Fund, pp. 1.
5
Ibid, pp. 8.
6
http://www.managedcaremag.com/archives/1301/1301.medicareadvantage.html, accessed 11/26/13.
About the Author
Kamesh Somanchi is a Healthcare Market Leader for Business Process Services, Global Growth Markets
within Cognizant’s Business Process Services Practice. His experience spans both U.S. and International
Healthcare, as well as Life Sciences. During his career, he has assisted those industries in areas that
include product filings; sales and marketing launch strategies; product launches; and post-launch stabilization and performance improvement. He has helped clients set up shared service centers — consolidating and optimizing operations to improve the customer experience. His expertise includes management
consulting, end-to-end process consulting; systems integration, and business process outsourcing. Kamesh
can be reached at Kamesh.Somanchi@cognizant.com.
About Cognizant
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