Chronic Boom Part 1: Why Medicare Needs Innovation More Than Ever

by: Mariza Hardin, Senior Director of Health Plans

Bam! Just like that, the baby boomers have become grandparents. Seems like only yesterday they were swelling nurseries, schools, then the workforce. Now they’re exploding onto the rolls of Medicare. Today there are almost 45 million people over 65 in the US. By 2030, the U.S. Census Bureau projects that number will be closer to 73 million.

This demographic mega-trend will have far-reaching effects on the single largest payer in American healthcare. Especially when you consider these other eye-popping trends: more than half of these folks already have prediabetes and a third of them have some form of heart disease. And sure enough, type 2 diabetes and heart disease have traditionally been two of the most costly chronic conditions.

That’s a lot to wrap your head around in two paragraphs. So let’s break it down. First, we’ll take a closer look at medicare enrollment and spending projections. Then we’ll talk diabetes and heart disease. And don’t worry, there’s light at the end of this tunnel.

The Medicare Balloon

Since 2011, baby boomers have aged into Medicare at a rate of about 10,000 per day. Think about that for a second. There have been a lot of days since 2011.

By 2030, Medicare enrollment is expected to jump to 80 million enrollees. That’s 48% higher than 2015 levels. For perspective: 80 million is roughly a quarter of all people living in the US today. Or pretty much everyone currently living in Germany. Ach du leiber!

Between now and 2024, Medicare spending is projected to grow at an average annual rate of 7.3%. Just ask any healthcare economist or policy expert: This rate of growth is bound to force the Centers for Medicare and Medicaid Services (CMS) to rethink how it pays for and incentivizes care. More on that in a bit.

The Chronic Disease Dilemma

So, we have the senior population boom. Add to that the rising cost of chronic conditions. You can imagine the squeeze this puts on Medicare. As more seniors enroll in Medicare, and more of them suffer from chronic disease, more care — and more spending — will be required from Medicare providers. Of those conditions, two of the most prevalent and costly are type 2 diabetes and heart disease. Consider these numbers from CMS related to type 2 diabetes:

• Medicare spent over $15,700 managing the health of each beneficiary with diabetes in 2014.
• For every 1000 Medicare beneficiaries with diabetes, there are 991 emergency room visits annually.
• 20% of people with diabetes who are admitted to the hospital are readmitted within 30 days.

Numbers related to heart failure are even bigger:

• Spending per Medicare beneficiary with heart disease in 2014: $41,784
• Emergency room visits per 1,000 beneficiaries: 1,657.
• Hospital readmission rate: 24%.

But wait, there’s more.

As our population ages and lives longer, researchers predict that the rate of heart failure (just one of many heart diseases) will grow from 5.1 million Americans in 2012 to over 8 million by 2030. And the costs associated with that increase? An extra $30 billion, give or take.

Sorry, we’re not done yet.

According to the Diabetes Care Project, more than 1 in every 3 Medicare dollars is spent treating patients with diabetes and conditions associated with the disease. Can you say, “disproportionate?”

This could help explain it: 11.2 million Americans currently over the the age of 65 live with type 2 diabetes. That’s more than a quarter of them. And as we mentioned up front, a lot of seniors are on the same path.

Here’s how the CDC breaks it down: 51% percent of all Americans 65 and older have elevated blood glucose levels, commonly known as prediabetes. This condition is associated with an increased risk of not only type 2 diabetes, but heart disease (see stats above) and stroke as well. Without intervention, one third of those with prediabetes will progress to type 2 diabetes within four years.

Most alarming: fewer than one in ten Americans with prediabetes are even aware they have the condition, despite the availability of simple risk screeners.

The Centers for Disease Control and Prevention has already estimated that, if current trends continue, one in three adults will have type 2 diabetes by 2050 — just as enrollment in Medicare crests.

Wow. How on Earth is Medicare going to pay for all this?

The Good News

Don’t worry. They’re all over it. And have been for some time.

Medicare beneficiaries have been allowed to receive health insurance through private providers since the 1970s — an option now known as Medicare Advantage. Most of these plans operate as HMOs or PPOs, and they’re required to offer benefits equal to or better than Medicare Parts A and B.

The Medicare Advantage plans operate under a system known as “capitation,” which sounds much more gruesome than it is. In a nutshell, it means that CMS pays each private plan a set amount every month for each member. If the plan can provide care at a lower cost than the CMS per-member benchmark, it either has to offer beneficiaries a premium rebate OR invest those savings in additional benefits for members.

When these plans offer additional benefits aimed at keeping high-risk patients from developing chronic conditions (like type 2 diabetes or heart disease), they can, potentially, generate even more savings. Indeed, some Medicare Advantage plans have become test labs for adopting preventive, outcome-focused approaches to delivering care.

And here’s the first piece of good news: An increasing number of seniors (30% and rising) are opting for Medicare Advantage plans instead of traditional Medicare.

Now, that growth doesn’t come without a hitch. A recent Avalere study asked: If CMS sticks with the funding formula they’re currently using, will they end up shortchanging the Medicare Advantage program?

Marilyn Tavenner, former head of CMS (and current President of AHIP), shares that concern. Last spring, she responded to questions about Medicare’s sustainability, especially in the face of demographic trends and rising chronic care costs. “Rather than relying on an antiquated fee-for-service model for care delivery,” she proposed, “CMS should focus on strengthening Medicare Advantage and the innovative programs that improve seniors’ health.”

Current CMS Administrator, Andy Slavitt, took it up a notch in remarks to pharmaceutical industry leaders late last year, saying it was critical “to find ways to improve affordability and access for patients, support and increase innovation in the industry, and — most importantly — make people healthier.”

The capitation formula, and plans’ ability to capture savings, are two of the main reasons that Medicare Advantage plans invest more in prevention strategies than straight-up Medicare does. And it ends up being good for their bottom line. Their members really like what the plans have to offer. Nearly 90% of them say they definitely will renew their coverage, and that they would recommend their plan to friends and family.

Which means that investing in preventive care — as CMS has already started to do — may hold the key to improving affordability, access, support, and innovation in healthcare. It could also go a long way to lowering Medicare’s cost projections.

Here’s the second piece of good news: Type 2 diabetes and heart disease are largely preventable. The unhealthy habits that move individuals from prediabetes to type 2 diabetes can almost always be changed. Same with the habits that turn hypertension or dislipidemia into heart disease. At Omada Health, we’re already helping seniors make lasting changes in their health, with our digital behavior counseling program, Prevent®.

This news isn’t just good for aging baby boomers. It’s good for CMS. Because, put simply, prevention delivers value.

As CMS amps up its transition away from fee-for-service healthcare, Medicare Advantage plans can provide a blueprint that leads the way forward. These plans already have experience implementing prevention strategies, reinvesting savings to provide more benefits, and driving higher rates of customer satisfaction and loyalty. But their ultimate success will depend in large part on how the preventive benefits they offer:

1. engage their members to
2. achieve meaningful outcomes that
3. decrease chronic disease risk.

It’s pretty easy math: The more chronic conditions they can help their at-risk members sidestep, the more preventive benefits they can offer. And that trend has the potential to create some welcome aftershocks of its own — better health and quality of life for seniors, lower Medicare expenditures, and more opportunities and demand for innovation in disease prevention.

In Part 2 of this series, we take a look at how Omada Health put risk reduction into action for some Medicare Advantage members, and share our three key takeaways about engaging seniors in preventive care.