November 13, 2008
PA Medicare Advantage Market - High Penetration & Many Competitors

Medicare Advantage (MA) companies have penetrated 37% of the market in Pennsylvania, which is among the highest rate of any state in the nation. In all, 30 companies serve seniors in managed Medicare plans in the commonwealth, including three companies licensed to sell there under the Blue Cross and Blue Shield brand. More than two-thirds of all MA members are served by health plans based in the state, with national leaders UnitedHealth Group and Humana appearing in the second tier of competitors. These factors all provide insight into the competitive dynamics of the MA market in Pennsylvania.

Distinct Regional Theaters of Competition

The high penetration rate is boosted by competition in the western part of the state, where more than half of all Medicare eligibles are served by managed care plans. In Greater Pittsburgh, home to two of the four leading MA companies in the commonwealth, penetration tops 58%. While the two market-leading Pittsburgh firms, Highmark Inc. and the University of Pittsburgh Medical Center (UPMC), enroll three-quarters of all MA members in western Pennsylvania, they are joined in that market by 18 other MA companies, four of which serve more than 10,000 members each.

The competition is also intense in southeastern Pennsylvania, where six companies each serve more than 10,000 MA members. The market leader, Independence Blue Cross (IBC), has a 47% market share. However, it is challenged there not only by two other state-based Blue Cross companies, Highmark and Capital BlueCross, but also by national companies, Aetna and Coventry. Of the 25 MA companies enrolling members in southeastern Pennsylvania, all but eight serve more than 100 in their managed Medicare plans.

Because central and northeastern Pennsylvania have much lower penetration rates than Philadelphia and Pittsburgh, these two regions may be even bigger battlegrounds for MA companies in the 2009 open enrollment period beginning November 15. Health plans signed up 27,724 net new managed Medicare members in the central part of the state over the last year, more than a quarter of the industry’s statewide gains, and penetration jumped from an estimated 19% to 27%. In the northeastern part of the state, where Highmark Blue Shield serves the Medicare Advantage market in conjunction with Blue Cross of Northeastern Pennsylvania, penetration increased from an estimated 12.6% a year ago to 17.2% in October 2008.

A big question looming over Pennsylvania’s open enrollment this year is the pending merger between the commonwealth’s two biggest Blues plans, Highmark and IBC, announced in March 2007. The state insurance commissioner is set to decide by January 27, 2009, whether the much-debated merger will go through, thus leaving enrollees plenty of time to switch plans by March 31 if their view of the landscape is changed by the commissioner’s decision.

Statewide MA Environment

Most of the state’s nearly 115,000 PPO members are in local plans; with only about 1,000 MA members belonging to regional PPOs authorized by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. PPO membership increased throughout the state, with the strongest gains in the central and northeastern regions. Almost two-thirds of the PPO growth was in Highmark, which increased its PPO enrollment throughout the state. However, while Highmark strengthened its PPO plan in the greater Pittsburgh area, it was at the expense of its HMO based there.

Two Tiers of Competitors

Five MA companies each serve more than 50,000 members in Pennsylvania, with potential merger partners Highmark and IBC leading the competition. Coventry and Aetna made strong gains in the last year, pushing both companies above the 50,000 mark. The fifth top-tier company, UPMC, increased its membership throughout western Pennsylvania during the last year, accounting for 37% of the growth in greater Pittsburgh and gaining market share there.

Competition is also intense among companies serving between 10,000 and 50,000 members, with Bravo Health, a Texas Medicare specialty company, widening its statewide lead over local, Danville-based, Geisinger Health System. However, the two companies compete primarily in different regions of the state, with Bravo strongest in the Philadelphia area and Geisinger the leading competitor in central Pennsylvania. Geisinger is an integrated physician-controlled healthcare company. Bravo entered the market in Pennsylvania in August 2007 with its purchase of Senior Partners.

Further evidence of the competitive nature of Pennsylvania’s MA market can be seen in the fact that 27 of the 30 companies serving members in the state increased their enrollment over the last year. Four of the top-tier companies increased membership by at least 10,000, and six others saw growth of between 1,000 and 10,000 each. Among leading companies, only IBC lost a substantial number, shedding 10,180 since October 2007.

Maryland-based Coventry had the biggest net increase, nearly doubling its Pennsylvania enrollment. The company grew its membership in all but one of the state’s 67 counties, showing the biggest exponential increase in northeastern Pennsylvania, where it jumped from 848 members in October 2007 to more than 7,000 a year later. Coventry had its biggest Pennsylvania enrollment increase in the western part of the state, where it added 15,530 net new members and grew its market share from 11% to 14% over the last year. It also turned in a nice showing in southeastern Pennsylvania, growing from 3,100 to 10,439 members since October 2007.

Aetna is most competitive in the southeastern part of the state, with more than 50,000 members in the Pennsylvania counties in the Philadelphia metro area. Metropolitan Philadelphia accounted for most of the company’s Pennsylvania growth over the last year, but Aetna also more than doubled its enrollment in the northeastern, central and western parts of the state.

Changes to Come

The competitive Pennsylvania Medicare market will certainly change during the 2009 open enrollment period no matter what the insurance commissioner decides about the proposed merger between the state’s top two MA companies. Health plans are announcing changes in their offerings, and word of Aetna’s push in the Pittsburgh market is circulating on the Internet.

In October 2008 Highmark and IBC were serving almost half of all managed Medicare members in the commonwealth, with combined membership of almost 400,000. Though fending off strong challenges, they continued to dominate the markets in the state’s two largest metropolitan areas, with Highmark commanding a 57.5% market share in Pittsburgh and IBC serving 56.2% of MA members in the Pennsylvania counties of metropolitan Philadelphia.

Their two-year pursuit of permission to merge certainly has taken a toll on both companies, with each losing market share in their home territories and IBC losing more than 6% of its enrollment in the last year alone. This has opened the door for national and local companies to position themselves to compete in markets already well penetrated by strong market leaders.

As the 2009 MA enrollment season opens, Pennsylvania is surely a place to watch.

About this Report

This brief is ninth in a series of state assessments prepared by Mark Farrah Associates to help our subscribers gain a better understanding of local Medicare market dynamics. The data and publication source is Medicare Business Online™, a valuable resource and significant time-saver for companies that rely on data from the Centers for Medicare and Medicaid Services (CMS).

The database presents CMS Medicare Advantage and PDP membership data in user-friendly tables. Subscribers can query aggregate trends by parent company & state and drill down to county level data. Every table is downloadable to Excel. Our data updates are uploaded every month within 1 day of CMS release. Subscribers also have access to the state assessments and many additional resources. The cost for an annual subscription is moderately priced at $500 to $750.

About Mark Farrah Associates and Medicare Business Online™

Since 1997 Mark Farrah Associates (MFA) has been recognized as a leader in analyzing health insurance business. Committed to simplifying the analysis of the health insurance industry by providing market data and analysis tools, our products include Medicare Business Online™, the Health Coverage Portal™, Health Insurer Insights™, and Health Plans USA™.

Medicare Business Online™ is an online database offered by Mark Farrah Associates (MFA) to simplify the tracking of Medicare Advantage and PDP growth and competition. The product provides easy access to national, state and county-level enrollment trends and plan market share for competitive analysis.