The Medicare program continues to offer sustainable, long-term growth and opportunities. Over the next ten years it is expected that 40.6 million individuals will turn age 65 and that the Medicare-eligible population will grow from 65.0 million beneficiaries to 78.7 million beneficiaries. This means that over 13.7 million more individuals will be added to the Medicare program over the next 10 years, a 21% increase. Beyond 2032, an additional 4.7 million are projected to be added by 2040 (Table 2).
While Telos Actuarial research indicates a slight decrease in Medicare Supplement enrollments in 2023, it is anticipated that enrollments will return to growth in 2024 and a growth rate in 2025 and beyond that exceeds the Medicare enrollment growth rate, creating robust opportunities for insurance carriers, reinsurers, agents, and marketing organizations in the Medicare Supplement market.
Telos Actuarial has compiled data from various sources and developed actuarial models to project future Medicare Supplement enrollments and premium levels over the next 10 years.
Medicare Eligibility Projection
The growth projected by the 2023 Medicare Trustees Report is being driven by the influx of baby boomers turning 65 and joining the Medicare program. Although the actual growth rate from 2021 to 2022 is down slightly (1.7% actual vs. 1.9% projected) from prior projected amounts, the overall total number of Medicare beneficiaries is up slightly (65.042 million actual 65.003 million projected).
The 2023 Medicare Trustees Report projects a lower growth rate in 2023 (1.9%) than what was projected in the prior year’s Report (2.5%). Additionally, the 2023 report is projecting 66.3 million Medicare beneficiaries in 2023 compared to 66.6 million in the 2022 report. These lowered projections are causing the total projected Medicare beneficiaries in 2040 to be 83.4 million compared to the 83.9 million projected in the 2022 report.
Historical Medicare Supplement Assessment
Consistent with 2021, the number of Medicare Supplement beneficiaries experienced a decrease from 2021 to 2022. The decrease followed the slowing annual growth rates that were realized in 2019 and 2020. This slowdown can be directly attributable to the growth in the Medicare Advantage market. Many Medicare Advantage plans have grown in popularity due to the availability of $0 monthly premium plans, additional supplemental benefits, and presence of simplified enrollment processes. Carriers in the Medicare Supplement market are continuing to seek ways to match the simplification of the Medicare Advantage enrollment process.
Cost Sharing Plans and First Dollar Coverage
Plans G and N began to see significant increases in market share beginning in 2013. Over that time period the enrollment in these plans has increased from 10.7% of covered lives to 45.1% in 2021. A large portion of the growth in market share for Plans G and N is at the expense of plans providing first dollar coverage.
This shift to Plans G and N is more pronounced when considering recently issued Medicare Supplement policies. Graph 3 below displays the same information as Graph 2, but only includes the prior 3 issue years for each experience year. In 2022, Plans G and N made up over 77% of the lives issued between 2020 and 2021 compared to 14% in 2012 (for lives issued between 2010 and 2012). Over that same timeframe, first dollar coverage plans (largely Plan F) have decreased from 71% in 2012 to 12% in 2022.
Upon further analysis of the Plan G and Plan N aggregate cohort, Plan N continued to steadily add lives each year since 2012 but has demonstrated a slowdown in recent years while Plan G has continued to surge. Graph 4 below shows the distribution between Plan G and Plan N for the prior 3 issue years’ cohorts. As demonstrated in this graph, the 2022 14.6% distribution for Plan N is down significantly from its recent high of 58.3% in 2013.
The Impact of MACRA
In 2016 the NAIC revised the Medicare Supplement model regulation to conform to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under this new regulation Medicare Supplement policies are no longer able to provide coverage for the Part B deductible in policies sold to those newly eligible for Medicare as of January 1, 2020 or later.
This change effectively eliminates first dollar coverage plans as an option for individuals who become newly eligible for Medicare in 2020 or later.
However, Plans C, J, F, and high deductible F can still be sold after 2020 to individuals who were eligible for Medicare prior to 2020. Existing policyholders with these plans can also retain their policies in 2020 and beyond.
MACRA also requires that carriers offer Plans D and G (previously C and F) in guaranteed issue situations to individuals who are newly eligible in 2020 or after. Additionally, carriers have the opportunity to offer a high deductible Plan G to both existing and newly eligible beneficiaries starting in 2020.
Medicare Advantage vs Medicare Supplement
With the growth in the number of Medicare enrollees over the past decade, both Medicare Advantage and Medicare Supplement have experienced significant growth during that time period. Both products play an important role in providing health insurance coverage for seniors in the United States but do so in different ways and in different areas of the country.
Medicare Advantage tends to have a higher penetration in urban areas, and Medicare Supplement tends to have higher penetration in rural areas. 70% of the counties in the U.S have higher Medicare Advantage enrollment, and 30% have higher Medicare Supplement enrollment. These are up from the 2021 values of 64% for Medicare Advantage and 36% for Medicare Supplement.
Medicare Supplement Projection
Demographic characteristics of current Medicare beneficiaries are reported accurately and do not materially change.
- Current policy lapse and replacement rates will not materially change in the future.
- Annual Medicare Supplement claim and rate increase trends will not materially change in the future. We have observed a slightly higher claim trend in recent years, but this does not materially impact our estimates of future claim trends.
- Any significant, out-of-the-ordinary changes in Medicare Supplement premium rates for existing business will be offset by rate changes for newly eligible beneficiaries in 2023 and after.
- Regulatory requirements for Medicare Supplement and Medicare Advantage plans do not materially change
This projection assumes average premiums will experience moderate increases over the projection horizon. The effect of trends in Medicare Advantage, retiree health benefits, and other types of supplemental coverage were also considered.