Getting Dibs on (MA) Bids - Part 1

A Medicare Advantage (MA) insider shares advice on how entrepreneurs can more effectively anticipate opportunities to help MA Organizations improve performance

First some disclosures

For some time I have been interested in helping build more visibility with more entrepreneurs into how MA plans operate. While I have worked with MA companies for over 10 years, I never actually worked inside of one. While I can bring an outsider’s perspective, I have been excited about the opportunity to interview the experts who, in plain language, can help educate a digital health audience that often gets frustrated navigating the complexity of the industry. But I had a problem. In my search for an interviewee, I discovered that it is hard for employees in MA companies to get communications approval to speak on the record.  

Instead of finding a single person to talk about all of this publicly, I have created what a single “interview” might look like based off of conversations with multiple MA executives and experts in the plan design strategy process.  My imaginary interviewee today, Susan Moop, is a fictional Medicare Advantage leader.  The conversation is made up, but the content is informed by executives with real profit and loss and benefit design management experience, and the content of the interviews was edited by them.

Interview summary

The interview with Susan offered a fascinating lens into how MA works, and also reinforced that while secretive, there are predictable elements that technology and services companies can anticipate to better support prospective MA clients. It was such a thought provoking discussion, we broke the interview into multiple parts. Part 1 will focus more on getting the diagnosis right (the strategy) and subsequent parts will focus on the treatment plan (the operating plan to execute) and how companies can support MA organizations to achieve their operating targets.

Part 1 highlights

1. To understand a MA plan, how it works, wins and loses, you first need to understand the plan design process and related decision making.  

2. This exercise takes a long time. For the plans that will be purchased and go into effect on January 1, 2024 - leadership at these companies have been debating strategy and contingency options as soon as they finalized the 2023 bid submission - which means this conversation started in summer 2022. That’s right, most key MA plan decisions are set in stone 12-18 months before the product is available to the public, and little can be done to make changes once it is available to the public

3. The exercise takes so long because 1) it is important to get right 2) it requires a very complex set of data inputs and knowledge of local markets 3) is very cross functional 4) needs to contemplate geographic variation and increasingly large portfolios of plan designs and 5) needs real-time competitive analysis and game theory about how the competition might respond.

Full interview

The following is based on actual events. Only the names, locations of the actual events have been changed.

Introduction

We are excited to welcome our first visiting contributor to TheTreatmentPlan, Susan Moop. We interviewed Susan, one of the pre-eminent experts on MA in the country, to get an insider perspective on the MA bid strategy and planning process. The MA bid process is among the most consequential business processes in US health care, funding the care for over 28 million Americans and accounting for $427B¹ in federal expenditures. As a federal program administered by Centers for Medicare & Medicaid Services (CMS) with a highly regulated annual cycle, the bid process is highly structured, the inputs are well studied, and the blind auction submission offers some drama that caters to eager game-theorists. Understanding the process, why it is important, and anticipating challenges and opportunities MA plans and their risk-bearing provider partners face can offer rich insights for digital health entrepreneurs to harness in their sales efforts with MA clients.

In this discussion Susan shares her background, what attracted her to MA, how the bid process works, why she believes it is so important to understand the process, and offers advice for entrepreneurs and business developers who have solutions that could better support MA plans in their business and clinical objectives.

Interview

TheTreatmentPlan: Susan, welcome, it is so great to have you. I have been waiting to do this interview for months - many folks in health care could benefit from plain-english conversations about the drivers of Medicare Advantage economics. I would not be surprised if this becomes my most read post to-date.

Susan Moop: Thanks Duncan, for the very few people who read your stuff, I am happy to help out 😉.

TheTreatmentPlan: 🤣 Touché. We’ll be keeping your identity blinded to de-risk your association with a low readership substack. Ok, let’s get going. Before we dig into some questions, can you tell us a little about yourself? How did you get into this world? And why have you decided to stay in what a lot of people consider the “dark side” of health care? 

Susan Moop: In my experience a lot of folks in leadership positions at Medicare Advantage have come out of finance or network departments inside of payors. For me it was finance. I joined an MA plan as an actuary. I was excited about applying my actuarial skills into a more meaningful sector. Once there, I had deep exposure to how the business works, and supporting (and then leading) the bid planning process was a great place to learn and make an impact. From there I moved into strategic finance roles partnering with market presidents, and ultimately I served as a market president myself, which is where I am today. Over 25 years I have been fortunate to play these roles in multiple health plans, including United Healthcare, Humana, WellCare and Aetna. I have seen it all!

As for why am I still here? I strongly believe in the MA program and the ability to drive access, health improvement, and experience for one of the most important, growing and consequential segments of the US population. I see it in the data. What also attracted me was the opportunity to drive improvement at big scale. The Medicare Advantage program is also one of the centerpieces for innovation in health care today. Not only that, I talked my own parents into considering a Medicare Advantage plan. They made the decision with their advisor to join, and that decision has been a good one. Their plan has had important positive impacts on their health, finances, and lives. So this is about my career passion and it is also personal.

TheTreatmentPlan: That is neat. My parents were eligible for a very generous Medicare supplemental plan as part of my Mom’s retirement benefits, so it never made sense to consider other alternatives.  There is always a lot of charged opinions about the decision making criteria for MA vs. traditional Medicare which may be another post, even if it is politically more sensitive…

Related to your professional trajectory, you outline how deep understanding of the finances of an MA plan was instrumental in your career. The bid strategy process seems to be the core business process of an MA plan. Is that correct?

Susan Moop: That is correct. I will try to keep this at ELI5, but basically Medicare Advantage plans are contracted with and approved by CMS to administer MA benefits in specific counties. And each year they must submit their proposals, called “bids,” to CMS. The bid outlines how much it will cost that plan to cover a defined set of benefits that traditional Medicare covers relative to a benchmark. The benchmark is the average spending for traditional Medicare in that county.  The plan makes decisions on how much to cover themselves vs. cost sharing with the member, which can include copays, coinsurance, and deductibles. 

If the plan’s bid cost falls below the benchmark cost, its payment from CMS is the bid it submitted (with additional payment adjustments in the form of risk adjustment & Star Rating quality bonuses) and a share of the savings from the benchmark called a rebate. Essentially the MA organization is saving the government money because its bid is less than what the government expects to pay via the benchmark, so the plan gets to keep some of what they’re saving the government.  With these rebates the plan can either offer benefits that traditional Medicare does not offer or it can offer lower premiums. Extra benefits include services like transportation, in-home meals, vision, dental, Part D drug coverage, etc. 

If the plan’s bid falls above the benchmark, its payment from CMS is the benchmark rate. The plan may still offer additional benefits, but the plan will charge a premium to the member.

These bids are submitted blindly to CMS which means that the MA plan is not aware of how its competitors are bidding their plans. To grow and operate sustainably, this means it is vital to always think about 1) what drives value in the eyes of the beneficiary/consumer and 2) how one thinks your competition can provide value relative to you.

There are resources to go deeper on bid. Those include white papers from folks like Better Medicare Alliance and the Commonwealth Fund. Here is also a MedPAC schematic from the BMA article that shows the calculations. Definitely not ELI5, but probably the most clear diagram I have found.

TheTreatmentPlan: Ok, so one way to think about it is that there is a process to analyze lots of data, outline different business objectives that you want to accomplish, model benefit scenarios that could accomplish those objectives, make some predictions about different responses that your competitors might make, and then refine your benefit scenarios to anticipate competitive actions? That sounds fun.

Susan Moop: Yes, it is analytical but also an incredibly strategic process and one of the dynamics that makes it more fun and competitive is that your competitors are all working through this at the same time, but you have no insight into the decisions they are making until after decisions are made. And for me personally, what I like most is that the conversation is often about clinical performance improvement opportunities so as to “change the game” in ways that the competition cannot. In short, this is chess, and not checkers. I like chess.

TheTreatmentPlan: Chess makes my head hurt. Maybe this is why I never have worked at an MA plan... Later I want to go back to your clinical “change the game” comment but let’s first talk about the operations of bid submission. Something tells me that understanding the constraints and timeline is step 1.

Susan Moop: Absolutely. Understanding the required timing of the submission dates and when data are made available helps you work backwards into designing a planning process that ensures you make the best decisions you can possibly make. Below are 2 slides from Milliman that outlines both the required steps and how MA plans typically plan around them for 2024 bid. Pictures are probably easier than words, here.  I will say that these slides underemphasize work that happens before January.  In many of the organizations where I have worked, we have started the planning process in September.

TheTreatmentPlan: September?  So your organization started planning for 2024 in September 2022?  This is eye opening (and maybe a little mind numbing). As an outsider to me there seem to be 2 big takeaways. First, this is really long and for 2024, which feels far away, the strategy work started a while ago. And second, the pricing passes are quite long. Chess indeed?

Susan Moop: Yes, preparing for 2024 for many organizations started as early as summer 2022. In some organizations there is a lot of distaste for traditional holidays as often these processes have key steps that funnily enough occur around such holidays treasured by non Medicare Advantage folks: Labor Day, Thanksgiving, New Years, Valentines Day… I saw you had a post about Valentines Day in Las Vegas?

TheTreatmentPlan: You read my posts! I am blushing.

Susan Moop: I skimmed that one and there were a few typos.

TheTreatmentPlan: I have been accused of needing editorial help. I clearly don’t write blogs as carefully as MA plans design their bid strategies.

Susan Moop: Well attention to detail is an important element. Obviously year-round execution is vital, but the reality is that if the MA organization gets the plan design strategy wrong, it can be devastating to your business. Unlike in other sectors where businesses can change their approach, once the plan is published and available to be sold, it cannot be changed until the following year. There are only a few levers that MA plans can pull during the year, operationally, to address mistakes in plan design for that calendar year. To highlight the risk of this: if a plan screws up on pricing for plans that are offered to members during 2024, that mistake was likely made in a decision in late 2022 or early 2023. By the time the plan realizes it in 2024, its hands are tied. It is stuck with dealing with the issue throughout 2024, and hopefully realizes it in time to adjust for the 2025 year. These decisions are made almost two years in advance of the product coming out. 

The other reason it takes long is that many MA plans have complicated, multi-county geographic presences, and as we are seeing and as you pointed out in one of your posts, the MA organizations have complex (and growing) mixes of different plan designs options for different consumer preferences. This is not quite the same as managing the cereal SKUs in a supermarket aisle, but absolutely the marketing complexity has made the process more complicated.

TheTreatmentPlan: When you say “when the MA organization gets the plan design strategy wrong, it can be devastating to your business” can you share more about what you mean? What can go wrong and what are the implications?

Susan Moop: Sure. One mistake that gets consistently made is when MA organizations in a given geography feel pressured to grow. Maybe they have had a few years where growth has stalled vs. their peers, or maybe they are entering into a new market without much brand recognition in the community and/or with brokers. So one approach that can be used to super charge the marketing and sales force is to design a set of MA plans that have sufficiently more robust benefits that encourage members to switch from the competition. The benefits could be more supplemental benefits like transportation or vision, or they also could be a premium rebate plan that actually gives back $50-$150 into the members’ social security checks. Often when you make big improvements to the plan, you understand that you may “pay” for that with lower profitability. But what if your competitor, at the same time, makes an unintended move and actually makes benefits less attractive? All of a sudden vastly more members join your MA plans than you anticipated, and the profit impact on the enterprise is much bigger than anticipated. This kind of swing puts pressure on the organization, and often in subsequent years, the organization will be forced to dial back benefits. These actions also erode brand credibility in the community and with the brokers, making the growth unsustainable.

TheTreatmentPlan: I do notice in earnings calls CEOs reinforce their focus on this consistency year over year. So clearly it takes a lot of analytical rigor to get these decisions right. I am also guessing that part of the reason this work is so hard is that based on what you described, the work is hugely cross functional. It is not just a bunch of actuary math geeks sorting some numbers out.

Susan Moop: I think you are calling me a geek, but yes. You obviously have the finance folks who are central to the process, but you also have marketing, sales, network, operations, analytics, compliance, member experience and clinical programs teams. Basically the entire company. And if you are a health plan that has distributed markets around the country, that group gets exponentially larger. Sure, you can manage a lot from headquarters and centralize lots of decision making, but remember that the competition, provider dynamics, and consumer needs are all local, and therefore local insight is what often distinguishes winners from losers. For example, if a competitive MA plan in a specific market is losing credibility with the brokers in that community, that is critically important for the cross-functional team to know. It may signal an opportunity to not over-invest in the benefits design and still take market share.

TheTreatmentPlan: It is a little hard to imagine how you pull all these voices together for an MA organization that works nationwide. I am trying to picture the number of faces on the Microsoft Teams video meeting. And how the heck did this happen pre-Covid?

Susan Moop: All I will say is that these are expensive meetings and it is an expensive process.

TheTreatmentPlan: We will take a break after this last question, but relative to that point, there must be incredible pressure to make sense of the data in a way that these teams can consume the information and have meaningful discussion.  Is this spreadsheet hell?  

Susan Moop: To some extent it used to be and there is a lot of variability from one MA organization to another, but this is where we have seen a lot of interesting analytical innovations being deployed by finance and analytics teams to help different stakeholders understand what is going on.  Many of these analyses are built in-house, and there are also AI companies and consultancies who have built big businesses around analyzing, visualizing and even facilitating the bid strategy discussions.

TheTreatmentPlan: Yes, the advancements in AI seem like an obvious opportunity.  It is neat that such technology exists.  At some point I need you to tell me who is doing interesting work here.

Ok - this is a good jumping off point to take a break as I want to go back to your earlier comment about clinical performance initiatives. But given the complexity of all this, it is probably easier to digest in a separate Part 2 of our interview. Hope that is ok with you?

Susan Moop: I am happy to help Duncan.

I want to thank HTN community members Deana Bell and Kevin O’Leary for their contributions editing and providing feedback, not to mention all the Susan Moops who will not be named.

1. https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2022-enrollment-update-and-key-trends/