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MARKET TRENDS: MEDICARE ADVANTAGE MARKET Gorman Health Group Issued: March 30, 2017

| March 2017

TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................................ 3

MARKET CONSOLIDATION EFFECTS ......................................................................... 4

TRUMP ADMINISTRATION ........................................................................................... 4

MEDICARE ADVANTAGE MARKET TRENDS ............................................................. 5

PLAN OFFERINGS ................................................................................................................................... 5

PENETRATION ........................................................................................................................................ 8

AEP COMPARISON ............................................................................................................................... 11

MA ENROLLMENT: PRODUCT TYPE ................................................................................................... 14

MA ENROLLMENT: PARENT ORGANIZATION .................................................................................... 15

D-SNP ENROLLMENT TRENDS ........................................................................................................... 19

DEMOGRAPHIC IMPACT ............................................................................................ 20

RETENTION EFFORTS ................................................................................................ 20

DISCUSSION ................................................................................................................ 21

APPENDIX 1: INDIVIDUAL MA STATE ENROLLMENT TREND, 2013 – FEB 2017 .. 22

APPENDIX 2: MEDIGAP PENETRATION BY STATE ................................................. 24

APPENDIX 3: INDIVIDUAL MA ENROLLMENT BY PRODUCT TYPE, 2013-FEB 2017 ...................................................................................................................................... 25

APPENDIX 4: NATIONWIDE DEMOGRAPHICS ......................................................... 26

| March 2017

EXECUTIVE SUMMARY

At a 33% nationwide penetration, one-third of all Medicare beneficiaries are currently enrolled in Medicare Advantage (MA) plans. The MA market has shown continued signs of stability. The 2017 Annual Election Period (AEP) saw a growth of only 5.01%. In addition, the distinct count of MA plan benefit packages (PBPs) and the distinct count of MA contracts nationwide is also stable; there was a growth of 1/15% in the distinct count of MA PBPs and decrease of -1.06% in the count of MA contracts. With these facts in mind, there is an increased attentiveness by Medicare Advantage Organizations (MAOs) across the nation to develop strategies on how to thrive and progress in this stable environment. MAOs must understand the current landscape, growth trends, and what drives buyers and loyalty. In Defts “2017 Medicare Shopping and Switching Study,” we learn MA switching is down significantly. In fact, their study indicates, at a 14% switch rate, MA switching is down a whopping 40% this past AEP. Medicare beneficiaries are less driven today than in the past to switch plans. Deft’s 2016 “Age-in Study” shows us, because people are working longer, the individual commercial market makes up the majority of new age-in MA enrollees: 50%. The inevitable question: What is next for MA? How can MA plans grow and progress? Gorman Health Group, LLC (GHG) has run an analysis of the MA marketplace to spotlight the current national enrollment and trends since 2013. The goal of the analysis is to highlight the stability of the MA market and to help MA health plans and industry professionals understand national and state trends that are impacting growth. With this understanding, in an effort to remain competitive, MAOs are forced to be more innovative in the products they provide and in the services they offer to members. There are fewer age-ins and fewer switchers in this stable environment. Innovation is key. The analysis reviews national and state-level enrollment trends as of February 2017. Key findings include the following:

One-third of Medicare beneficiaries are enrolled in an MA plan

MA enrollment continues to grow, but growth has slowed

Slower growth shows a trend towards stabilization of the MA market

The distinct count of MAOs decreased by -1.06% this past AEP

The majority of states have between 20 and 70 distinct PBPs being offered, with an average of 11 PBPs offered by county

66% of the MA market is owned by only 10 parent organizations

The top 10 parent organizations are not the organizations experiencing the most growth in the 2017 AEP

Nearly 50% of MA enrollees are enrolled in a Health Maintenance Organization (HMO)

| March 2017

For the analysis, GHG used data collected by the Centers for Medicare & Medicaid Services (CMS) Source Landscape and enrollment files found on the CMS website (www.cms.gov).

MARKET CONSOLIDATION EFFECTS

When analyzing the current MA market, it is important to keep in mind the trend of mergers and acquisitions. As we will see further in the analysis, the top 4 industry giants – UnitedHealth Group, Inc., Humana, Inc., Kaiser Foundation Health Plan, Inc., and Aetna, Inc. – hold over half the MA individual market share (52% market share combined). Since 2011, we have seen a lot of movement. For example, Aetna acquired Coventry; Humana acquired Metropolitan Health; Anthem joined forces with Amerigroup; Cigna and HealthSpring, etc. Early in 2017, a mega merger of roughly $37 billion between Aetna and Humana was blocked by a federal judge because the deal would diminish rightful competition for consumers. Although this ruling may set a precedent for future mega mergers, it is clear these giants are pushing for more growth and have the dollars to do so. We may expect to see these larger firms targeting smaller organizations nationwide.

TRUMP ADMINISTRATION

In addition to the items above, we must keep in mind this past AEP and future of the industry was slightly disrupted with the 2016 elections and the new Trump administration. Although the expected new health care bill is yet to be established, we can expect the safest place for growth is within the MA line of business. Republicans generally like MA, and with major changes coming to the Health Insurance Marketplace and Medicaid, MA will experience the least interference. With this in mind, it is critical organizations understand the industry trends as they occur nationwide, but they must also drill down to their service areas to understand how they can continue to grow and be innovative in this stable environment.

http://www.cms.gov/

| March 2017

MEDICARE ADVANTAGE MARKET TRENDS

PLAN OFFERINGS

Before discussing enrollment, it is important to understand the trend of distinct plan offerings over time. As of February 1, 2017, there are over 2,700 MA plans (distinct PBPs) being offered nationwide. We have seen relative stability in the nationwide count of MA plans since 2013, seeing a growth of only 1.15% this past AEP. (Figure 1)

As we have seen stability in the overall number of plans being offered, we have seen a slower growth rate when looking at the nationwide count of distinct MA contracts. In fact, this past AEP, we saw, for the first time since 2013, an actual decrease (-1.06%) in the distinct number of contracts nationwide. With the trend towards consolidation, this should come as no surprise, but it is important to follow as it will impact competition. Only 280 contracts provide 2,719 plans nationwide. (Figure 2)

2,679

2,6222,611

2,688

2,719

-2.13%-0.42%

2.95%1.15%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2,540

2,560

2,580

2,600

2,620

2,640

2,660

2,680

2,700

2,720

2,740

2013 2014 2015 2016 2/1/2017

Figure 1: Distinct Count of Individual MA Plans Available, 2013-Feb 2017

Total Distinct MA Contracts Growth Percentage

| March 2017

As seen in Figure 3, nearly half of MA plans (44%) are HMOs. Since 2013, the total number of HMOs offered each year has increased. The 2017 AEP saw a 2.85% growth of HMOs nationwide. HMO Special Needs Plans (SNPs) and Preferred Provider Organizations (PPOs) are second and third in line, respectively, for overall presence in the nationwide market. Currently, both HMO SNPs and PPOs account for 17% of the individual MA plans nationwide. The total count of PPOs grew 2.67% over the 2017 AEP. (Figure 3)

249

265

276

283280

0.00%

6.43%

4.15%

2.54%

-1.06%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

230

240

250

260

270

280

290

2013 2014 2015 2016 2/1/2017

Figure 2: Distinct Count of Organizations Offering MA Plans, 2013-Feb 2017

Distinct Parent Organizations Growth Percentage

941 1,004 1,058 1,157 1,190

471 464 463469 464

526 500 455449 461

210 194 183168 171103 114 123126 127

428 346 329319 306

0

500

1,000

1,500

2,000

2,500

3,000

2013 2014 2015 2016 2/1/2017

Figure 3: Total Individual MA Plans Available by Plan Type, 2013-Feb 2017

HMO HMO SNP PPO HMO-POS PACE Other

| March 2017

There is a wide range of total plan offerings by state with the most being in California at a total of 283 and the least being in Alaska with a total of zero individual MA plans. However, the majority of states have between 40 and 80 distinct individual MA plans being offered. Not surprisingly, the states with the highest count of MA plans are California, Florida, New York, Pennsylvania and Texas while those with the lowest (excluding Alaska and Hawaii), are found in the plains states of Wyoming, Montana, North Dakota, South Dakota and Nebraska. This is expected, as we will see further in this analysis, the count of plans by states relates to total MA eligibles and penetration. (Figure 4)

Figure 4: Total Individual MA Plans per State, Feb 2017

| March 2017

As seen in Figure 5, the number of plans available to a single beneficiary has been relatively stable. To determine the average number of individual MA plans offered per county, GHG identified the total distinct number of MA plans by Federal Information Processing Standards (FIPS) numbers as found in CMS enrollment and landscape files and took the average distinct count by year. In February 2017, the average beneficiary can choose among 11 MA plans. In other words, there is an average of 11 MA plans in each county nationwide. It is important to note, however, the distinct count of plans by FIPS codes ranges from 121 to 1. Even with these extreme outliers, growth of the MA market has remained stable. We have not seen major changes in this market over the past five years.

PENETRATION

As seen in Figure 6 one in three – 33% – Medicare-eligible beneficiaries are enrolled in an MA, individual, or group plan (excluding United States territories). This accounts for over 19.3 million beneficiaries. The growth percentage of MA enrollment has steadily declined since 2014 (Figure 7). Although we see annual growth, the 2017 AEP saw only a 4.39 growth percentage. Please note this growth is indicative of growth from December 2016 to February 2017 only. There will be shifts over the course of the year. Nonetheless, when looking at growth percentage from December 2014 to December 2015 and December 2015 to December 2016, we see smaller overall growth.

10.610.66

10.75

11.1811.25

0%

0.52%

0.91%

4.01%

0.57%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

10.2

10.4

10.6

10.8

11

11.2

11.4

2013 2014 2015 2016 2/1/2017

Figure 5: Average Individual MA Plans Offered Per County, 2013-Feb 2017

Average PBP Per County Growth Percentage

| March 2017

14,886,564

16,387,08117,517,823

18,514,25019,327,723

0%

10.08%

6.90%

5.69%

4.39%

0%

2%

4%

6%

8%

10%

12%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2013 2014 2015 2016 2/1/2017

Figure 7: Total MA Enrollment, 2013-Feb 2017

Medicare Advantage Total Enrollment Growth Percentage

28.27%

30.21%

31.45%

32%

33.54%

0%

6.86%

4.10%

1.75%

4.81%

0%

1%

2%

3%

4%

5%

6%

7%

8%

25.00%

26.00%

27.00%

28.00%

29.00%

30.00%

31.00%

32.00%

33.00%

34.00%

2013 2014 2015 2016 2/1/2017

Figure 6: MA National Penetration, 2013-Feb 2017

Medicare Advantage Penetration Growth Percentage

| March 2017

Figure 8 shows the comparison of total individual and group enrollment. There is a surprisingly much higher growth percentage of MA group enrollment this past AEP than individual: 10.04 % versus 3.16%, respectively.

Figure 9 breaks down the overall 33% penetration as of February 2017 by state. Most states currently have between 20-30% MA penetration (individual and group). Although not a surprise, the states with the highest penetration are Minnesota (57%), Oregon (44.92%), Florida (42.59%), California (41.84%), Pennsylvania (41.17%), and Missouri (31.77%). Those with the lowest penetration, with the exception of Vermont and Alaska, are clustered in the plains states regions. As found in GHG’s “Medicare Supplement Market Trend Analysis,” there is an inverse relationship between MA and Medigap penetration. We learn when comparing findings of the Medigap analysis, those states with the lowest MA penetration are those with the highest Medigap penetration nationwide (Nebraska at 51%; Iowa at 49%; Kansas at 46%; Wyoming at 45%; South Dakota at 42%; North Dakota at 41%). (Appendix 2)

12,288,994

13,382,21214,349,529

15,192,78415,672,632

2,597,570

3,004,869

3,168,294 3,321,466

3,655,091

8.90%

7.23%5.88%

3.16%

15.68%

5.44% 4.83%

10.04%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

2013 2014 2015 2016 2/1/2017

Figure 8: Total Individual vs Group Enrollment, 2013-Feb 2017

Individual MA Group MA

Individual Growth Percentage Group Growth Percentage

| March 2017

AEP COMPARISON

It is important to compare AEP performances over time to get an appropriate understanding of AEP growth patterns. Figure 10 shows, since the 2015 AEP, overall growth each subsequent AEP is dwindling slightly but remains relatively stable. This follows the pattern we evaluated earlier in Figure 7 when looking at MA enrollment year over year. Stability remains the theme of the MA story. Figure 10 also assures the MA market, although growth percentage was slightly lower from the 2016 AEP, the increase in sheer enrollees is nearly 20,000 more. This helps reiterate the findings above – MA is growing but at a slower rate.

Figure 9: MA Penetration by State, Feb 2017

| March 2017

As we will examine below, the ten largest MA parent organizations are UnitedHealth Group, Inc.; Humana, Inc.; Kaiser Foundation Health Plan, Inc.; Aetna, Inc.; Anthem, Inc.; Cigna, WellCare Health Plans, Inc.; Centene Corporation, Aware Integrated, Inc.; and Scan Health Plan. Table 1 below shows the 2017 AEP overall growth for these top 10 organizations. All the top parent organizations show a positive growth this past AEP with the exception of Cigna and Centene.

Table 1: 2017 AEP Enrollment Trend by Top Parent Organizations

Parent Organization

Total Enrollees 12/1/2016


2017 AEP Trend

2017 AEP Growth

Percentage

UnitedHealth Group, Inc. 3,148,948 3,460,777 311,829 9.90%

Humana Inc. 2,834,180 2,845,780 11,600 0.41%

Kaiser Foundation Health Plan, Inc. 927,714 935,985 8,271 0.89%

Aetna Inc. 765,137 895,261 130,124 17.01%

Anthem Inc. 605,638 640,510 34,872 5.76%

CIGNA 503,028 445,980 -57,048 -11.34%

WellCare Health Plans, Inc. 293,421 344,960 51,539 17.56%

Centene Corporation 267,724 267,361 -363 -0.14%

Aware Integrated, Inc. 212,885 244,314 31,429 14.76%

SCAN Health Plan 167,068 181,412 14,344 8.59%

443,271

531,668

467,590

479,8483.61%

3.97%

3.26% 3.16%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

380,000

400,000

420,000

440,000

460,000

480,000

500,000

520,000

540,000

2014 AEP Growth 2015 AEP Growth 2016 AEP Growth 2017 AEP Growth

Figure 10: Nationwide AEP Comparison, 2014 AEP - 2017 AEP

Total Growth Growth Percentage

| March 2017

Interestingly, however, the top parent organizations did not exhibit the most growth this past AEP. Figure 11 shows the growth for those parent organizations which experienced the largest percentage of growth in the 2017 AEP. Keep in mind, the plans with the highest growth percentage this past AEP have one percent (1%) or less in overall market share. America’s 1st Choice of South Carolina (1% market share), Inc., had the most growth this past AEP with a growth of 245%. Blue Cross Blue Shield of Kansas City (0.04% market share) and Henry Ford Health System (0.2% market share) show the second and third highest growth percentage this past AEP at 207.19% and 175.53% growth, respectively.

5934,525

24,377

2,3284,658

8044,917

9,068

0 5,000 10,000 15,000 20,000 25,000 30,000

2017 AEPGrowth Percentage

Figure 11: 2017 AEP Growth by Parent Organization with the Largest Percentage of Growth

The Carle Foundation

Moses H. Cone Memorial Hospital Corp.

Stanford Health Care

Genesys Health System

Harvard Pilgrim Health Care, Inc.

Louisiana Health Service & Indemnity Company

Preferred Providers Health Plan, Inc.

Henry Ford Health System

Blue Cross and Blue Shield of Kansas City

Americas 1st Choice of South Carolina, Inc.

| March 2017

MA ENROLLMENT: PRODUCT TYPE

With a total enrollment of 7.7 million enrollees, nearly 50% of MA beneficiaries choose to enroll in an HMO plan type (Figure 12). Although HMO products continue to be the most popular product type among Medicare beneficiaries, Medicare Savings Accounts (MSAs), PPO, and Regional PPO (RPPO) SNPs showed the most growth this past AEP. Refer to Table 2 (and Appendix 3) below for a list of product types and their 2017 AEP growth trend and percentage.

Table 2: 2017 AEP Individual MA Enrollment Trend by Product Type

Product Total Enrollees

12/1/2016 Total Enrollees

2/1/2017 2017 AEP

Trend 2017 AEP Growth %

Market Share 2017

HMO 7,371,711 7,702,560 330,849 4.49% 49%

PPO 2,075,849 2,297,285 221,436 10.67% 15%

HMO SNP 1,900,932 1,893,161 -7,771 -0.41% 12%

HMO-POS 1,203,835 1,137,945 -65,890 -5.47% 7%

Regional PPO 1,072,489 1,069,106 -3,383 -0.32% 7%

Cost 549,645 553,345 3,700 0.67% 4%

Medicare-Medicaid Plan 369,285 390,731 21,446 5.81% 2%

Regional PPO SNP 249,436 264,531 15,095 6.05% 2%

PFFS 222,068 186,033 -36,035 -16.23% 1%

PPO SNP 82,529 77,785 -4,744 -5.75% 0.5%

HMO-POS SNP 56,229 59,256 3,027 5.38% 0.4%

PACE 35,935 36,294 359 1.00% 0.2%

MSA 2,841 4,600 1,759 61.91% 0.03%

Grand Total 15,192,784 15,672,632 479,848 3.16% 100%

HMO49%

PPO15%

HMO SNP12%

HMO-POS7% Regional PPO

7%

Cost4%

Medicare-Medicaid Plan2%

Regional PPO SNP2%

PFFS1%

PPO SNP1%HMO-

POS SNP0.4%

PACE0.2%MSA

0.03%

Figure 12: Distribution of Individual Enrollment in MA Plans, by Plan Type, Feb 2017

| March 2017

MA ENROLLMENT: PARENT ORGANIZATION

Figure 13 shows the February 2017 market share by Parent Organization. As we have seen in the past, the industry giants of MA remain consistently the same. UnitedHealth Group and Humana alone hold 30% of the MA individual market. Early in 2017, the Aetna-Humana $37 billion mega-merger was shut down. Although that sets a new tone for mega mergers, it is important to understand these organizations are looking to continue to grow, and they have the dollars to do so.

UnitedHealth Group, Inc.22%

Humana Inc.18%

Kaiser Foundation Health Plan, Inc.

6%

Aetna Inc.6%

Anthem Inc.4%

CIGNA3%

WellCare Health Plans, Inc.

2%

Centene Corporation2%

Aware Integrated, Inc.2%

SCAN Health Plan1%

Other34%

Figure 13: MA Market Share, by Parent Organization, Feb 2017

| March 2017

Figure 14 shows the raw enrollment numbers of the top five parent organizations. It is important to note these giants in the individual MA industry did not experience the most growth this past AEP, nor are they the organizations which have experienced the most growth since 2013.

2,862,0002,766,889

2,806,5393,148,948

3,460,777

2,030,115

2,415,597

2,743,1342,834,180 2,845,780

721,959 795,401874,215 927,714

935,985

339,166433,793

550,965 765,137895,261

581,285 553,755 573,665 605,638 640,510

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

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4,000,000

2013 2014 2015 2016 2/1/2017

Figure 14: MA Enrollment Trend, by Largest Organizations, 2013-Feb 2017

UnitedHealth Group, Inc. Humana Inc. Kaiser Foundation Health Plan, Inc. Aetna Inc. Anthem Inc.

| March 2017

Figure 15 highlights the 10 parent organizations which experienced the most growth from 2013 to February 2017. These organizations exemplify a growing trend of highly impactful local plans. Medstar Health, Inc., has shown the most growth over the past four years at an overall growth percentage of over 12,000%. Clover Health Holdings, Inc., comes in second with an overall growth of nearly 9,000%. These plans appear small in comparison to the giants in Figure 14, but their growth rate is important and should be noted. Starting small and pushing for, and ultimately achieving, large growth is possible in this current stable market. To better understand what these plans have in common, a deeper dive into their markets and product offerings would need to be done.

Without investigating the product detail of the largest and most growth organizations, Table 3 below shows us one key element of the largest parent organizations is a diverse portfolio – they are hitting more markets by offering various product types and, even further, various plans within product types.

Table 3: Individual MA Enrollment by Top 5 Parent Organizations, by Product Type, Feb 2017

Parent Organization

HMO Total

PPO Total

HMO SNP Total

HMO-POS Total

R-PPO Total

Cost MMP R-PPO SNP

PFFS PPO SNP

HMO-POS SNP

PACE MSA

UnitedHealth Group, Inc.

1,886,072 176,834 317,773 239,654 482,785 NA 19,988 264,531 30,610 74,570 16,992 NA NA

Kaiser Foundation Health Plan, Inc.

806,586 NA 83,088 NA NA 46,311 NA NA NA NA NA NA NA

Anthem ,Inc. 334,182 34,970 139,182 435 95,721 NA 35,644 NA NA NA 58 NA NA

Humana, Inc. 1,333,330 659,404 211,429 74,438 437,238 NA 16,824 NA 112,914 NA 203 NA NA

Aetna, Inc. 338,302 483,833 21,089 19,411 3,894 NA 28,732 NA NA NA NA NA NA

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2013 2014 2015 2016 2/1/2017

Figure 15: Enrollment by Parent Organizations with Most Growth, 2013-Feb 2017

Medstar Health, Inc. Clover Health Holdings, Inc.

Caidan Enterprises, Inc. QHP Financial Group, Inc.

CareSource Management Group Co. DLP Marquette General Hospital, LLC

Sentara Health Care (SHC) ULTIMATE HEALTH PLAN, INC.

Golden State Medicare Health Plan Intermountain Health Care, Inc.

| March 2017

In comparison, Figure 16 shows the product offerings by the five parent organizations that experienced the most growth over the past three years. With the exception of Clover Health Holdings, Inc.’s, growth in their PPO product, we see a theme of HMO, HMO SNP, and Medicare-Medicaid Plans (MMPs) as supporting their large growth percentage. In considering this, it is important to understand no market is created equal. Organizations must analyze each market with precision to identify their “sweet spot” to drive growth and opportunity.

7,149

3,046 2,265 2,5673,760

1,754771

24,924

11,068

18,969

0

5,000

10,000

15,000

20,000

25,000

30,000

MedStar Health,Inc.

Clover HealthHoldings, Inc.

CaidanEnterprises, Inc.

QHP FinancialGroup, Inc.

CareSourceManagement

Group Co.

Figure 16: MA Enrollment, by Product Type, by Parent Organizations with Most Growth, Feb 2017

HMO HMO SNP PPO Medicare-Medicaid Plan

| March 2017

D-SNP ENROLLMENT TRENDS

As we have already discussed, although the MA market is still expressing growth, we are trending towards stabilization. Organizations must understand their market and begin to explore how their product offerings can be enhanced to attract new eligibles. One such market is the Dual Eligible Special Needs Plan (D-SNP). Figure 17 shows the enrollment trend and growth percentage nationwide of the D-SNP product. There was a growth percentage of 14% in 2014. The drop in growth in 2015 is attributed to the large growth in MMPs. These plans were fairly new the market, and there was increase in offerings. Individuals are automatically enrolled in MMPs, which takes some of the D-SNP population. The MMP product grew nationwide just over 100% in 2015. However, we see the 2016 growth percentage of D-SNPs jump back up to over 7%. Just this past AEP, the D-SNP product grew almost 2%, and it will be interesting to see how the year-end growth looks in December 2017. Organizations should do a detailed analysis of their specific service area and competition to understand if this product offering is right for them.

1,512,913

1,724,735 1,741,6951,878,662 1,907,009

14%

0.98%

7.86%

1.51%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500,000

1,000,000

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2013 2014 2015 2016 2/1/2017

Figure 17: Nationwide D-SNP Enrollment Trend, 2013-Feb 2017

D-SNP Total Enrollees D-SNP Growth Percentage

| March 2017

DEMOGRAPHIC IMPACT

Finally, it is important to understand the demographics that impact the MA market. Table 4 below shows the nationwide population by age1. The demographics tell us the 65 and older population is growing – the total 65 and over population is expected to grow 18% over the next five years. To understand the market further, GHG also analyzes population by race classification and household income. Age, race, and income are important to market analysis as it can set the tone for what is feasible within a service area. For example, if there is a large market for household incomes of $50,000 or higher, perhaps a product with a slightly higher premium could be received. See Appendix 5 for a complete set of nationwide demographics.

Table 4: Nationwide Population by Age

Age 2017

Estimate %

2022 Projection

% Growth

Percentage

Age 55 - 64 41,866,929

43,575,137

4%

Age 65 - 74 29,466,143 59% 35,735,178 60% 21%

Age 75 - 84 14,481,874 29% 16,651,167 28% 15%

Age 85 and over 6,327,357 13% 6,688,544 11% 6%

Age 65 and over 50,275,374 100% 59,074,889 100% 18%

RETENTION EFFORTS

Organizations must also pay special attention to their internal retention efforts. With a stabilizing market, it is not only critical to examine markets for growth opportunity but also ensure you have an enhanced member experience to support Star Ratings. With retention efforts that focus on boosting Star Ratings, organizations may reduce loss of current membership but increase Star Ratings which provides the dollars that lead to product growth and enhancement. As we saw in DEFT’s research, market disruption in terms of product enhancement may lend to an increase in switchers. The cornerstone of an effective member experience strategy is cross-functional alignment, placing the member at the center of the health plan’s initiatives and core business functions. The results of implementing such a program may include reduced disenrollment rates and member attrition, increased member loyalty and referrals from the community, recognition and rewards for exemplary member service, and a return on investment via programs like risk adjustment, medical management, and quality bonus programs.

1 2017 Feb Senior Life and Claritas Pop-Facts Premier 2017. 2017 Claritas, LLC

| March 2017

DISCUSSION

At a 33% nationwide penetration, one-third of all Medicare beneficiaries are currently enrolled in MA plans. Although growing annually, the MA market has shown continued signs of stability. There is an increased attentiveness by MAOs across the nation to developing strategies on how to thrive and progress in this stable environment. MAOs must understand the current landscape, growth trends, and what drives buyers and loyalty. With a Trump administration and the uncertainty of the revised healthcare bill, we can rest assured MA is supported, and little disturbance from the Trump administration should be expected for this line of business. MAOs with a goal to grow should consider investment in their MA products – whether it is expanding to new markets, offering new products, or enhancing their member experience. It is advised organizations take the time now to analyze their respective markets to help position themselves for success in MA. GHG recommends analyzing the following areas of your market today:

Market analysis (demographics, enrollment, benefits)

Financial feasibility study

Review retention strategies

Network analysis

Sales/marketing strategy return on investment (ROI) study As we saw with the comparison of products offered by the largest firms and the firms with the most growth since 2013, no market is created equal, and although the largest organizations offer a variety of products, those with the most growth are focusing on a few specific plan types, and they have found their service area sweet spot and are taking advantage of the opportunities. Additionally, trends reflect that the big winners are providing innovation in the products they provide and in the services they offer to members.

APPENDIX 1: INDIVIDUAL MA STATE ENROLLMENT TREND, 2013 – FEB 2017

State Total

Enrollees 12/1/2013





Trend 2013-2014

Percentage Growth

2013-2014

Trend 2014-2015

Percentage Growth

2014-2015

Trend 2015-2016

Percentage Growth

2015-2016

Trend 2016-

2/1/2017

Percentage Growth 2016-

2/1/2017

Alabama 201,628 215,238 233,442 244,205 253,873 13,610 6.75% 18,204 8.46% 10,763 4.61% 9,668 3.96%

Arizona 348,673 367,331 387,412 406,352 413,200 18,658 5.35% 20,081 5.47% 18,940 4.89% 6,848 1.69%

Arkansas 99,595 105,815 111,938 117,590 122,597 6,220 6.25% 6,123 5.79% 5,652 5.05% 5,007 4.26%

California 1,528,797 1,715,114 1,822,637 1,888,726 1,921,359 186,317 12.19% 107,523 6.27% 66,089 3.63% 32,633 1.73%

Colorado 207,935 222,202 240,304 251,827 259,229 14,267 6.86% 18,102 8.15% 11,523 4.80% 7,402 2.94%

Connecticut 129,888 137,722 147,774 158,736 164,188 7,834 6.03% 10,052 7.30% 10,962 7.42% 5,452 3.43%

Delaware 9,232 10,140 10,962 11,965 13,314 908 9.84% 822 8.11% 1,003 9.15% 1,349 11.27%

DC 5,955 7,222 8,534 9,886 10,232 1,267 21.28% 1,312 18.17% 1,352 15.84% 346 3.50%

Florida 1,295,824 1,408,404 1,516,655 1,606,909 1,649,144 112,580 8.69% 108,251 7.69% 90,254 5.95% 42,235 2.63%

Georgia 264,281 306,160 350,771 389,020 406,447 41,879 15.85% 44,611 14.57% 38,249 10.90% 17,427 4.48%

Hawaii 85,036 88,784 85,304 87,151 87,853 3,748 4.41% -3,480 -3.92% 1,847 2.17% 702 0.81%

Idaho 76,902 83,078 88,752 90,830 89,965 6,176 8.03% 5,674 6.83% 2,078 2.34% -865 -0.95%

Illinois 181,190 257,526 276,100 292,100 307,850 76,336 42.13% 18,574 7.21% 16,000 5.80% 15,750 5.39%

Indiana 195,100 208,869 221,468 233,132 245,692 13,769 7.06% 12,599 6.03% 11,664 5.27% 12,560 5.39%

Iowa 72,553 74,219 76,866 80,115 83,950 1,666 2.30% 2,647 3.57% 3,249 4.23% 3,835 4.79%

Kansas 51,680 54,266 57,576 60,912 65,137 2,586 5.00% 3,310 6.10% 3,336 5.79% 4,225 6.94%

Kentucky 106,660 117,639 127,463 139,925 147,496 10,979 10.29% 9,824 8.35% 12,462 9.78% 7,571 5.41%

Louisiana 185,848 203,171 221,564 236,715 247,679 17,323 9.32% 18,393 9.05% 15,151 6.84% 10,964 4.63%

Maine 42,301 49,944 58,778 67,967 72,107 7,643 18.07% 8,834 17.69% 9,189 15.63% 4,140 6.09%

Maryland 54,564 54,052 53,899 64,113 68,883 -512 -0.94% -153 -0.28% 10,214 18.95% 4,770 7.44%

Massachusetts 184,549 208,950 214,472 232,267 240,418 24,401 13.22% 5,522 2.64% 17,795 8.30% 8,151 3.51%

Michigan 262,297 288,403 340,083 359,806 383,819 26,106 9.95% 51,680 17.92% 19,723 5.80% 24,013 6.67%

Minnesota 392,591 422,123 452,248 482,610 496,406 29,532 7.52% 30,125 7.14% 30,362 6.71% 13,796 2.86%

Mississippi 64,270 70,169 78,387 85,298 89,280 5,899 9.18% 8,218 11.71% 6,911 8.82% 3,982 4.67%

Missouri 243,988 264,193 286,820 308,586 319,874 20,205 8.28% 22,627 8.56% 21,766 7.59% 11,288 3.66%

| March 2017

State Total

Enrollees 12/1/2013





Trend 2013-2014

Percentage Growth

2013-2014

Trend 2014-2015

Percentage Growth

2014-2015

Trend 2015-2016

Percentage Growth

2015-2016

Trend 2016-

2/1/2017

Percentage Growth 2016-

2/1/2017

Montana 27,240 30,728 34,178 38,649 40,880 3,488 12.80% 3,450 11.23% 4,471 13.08% 2,231 5.77%

Nebraska 30,924 30,834 31,842 33,534 35,905 -90 -0.29% 1,008 3.27% 1,692 5.31% 2,371 7.07%

Nevada 122,052 131,690 142,893 152,833 159,228 9,638 7.90% 11,203 8.51% 9,940 6.96% 6,395 4.18%

New Hampshire 9,406 11,331 12,750 16,999 20,007 1,925 20.47% 1,419 12.52% 4,249 33.33% 3,008 17.70%

New Jersey 191,767 175,732 176,295 197,576 208,037 -16,035 -8.36% 563 0.32% 21,281 12.07% 10,461 5.29%

New Mexico 84,630 92,300 97,833 102,768 107,145 7,670 9.06% 5,533 5.99% 4,935 5.04% 4,377 4.26%

New York 916,465 979,775 1,028,951 1,065,068 1,078,335 63,310 6.91% 49,176 5.02% 36,117 3.51% 13,267 1.25%

North Carolina 319,044 366,351 396,201 420,753 436,499 47,307 14.83% 29,850 8.15% 24,552 6.20% 15,746 3.74%

North Dakota 14,693 16,581 19,320 22,980 21,199 1,888 12.85% 2,739 16.52% 3,660 18.94% -1,781 -7.75%

Ohio 475,485 509,510 564,028 632,380 655,888 34,025 7.16% 54,518 10.70% 68,352 12.12% 23,508 3.72%

Oklahoma 92,783 96,031 100,977 105,658 110,393 3,248 3.50% 4,946 5.15% 4,681 4.64% 4,735 4.48%

Oregon 245,853 263,675 280,081 294,333 301,889 17,822 7.25% 16,406 6.22% 14,252 5.09% 7,556 2.57%

Pennsylvania 758,219 782,975 803,179 827,504 847,999 24,756 3.27% 20,204 2.58% 24,325 3.03% 20,495 2.48%

Puerto Rico 450,782 464,898 476,665 481,240 483,084 14,116 3.13% 11,767 2.53% 4,575 0.96% 1,844 0.38%

Rhode Island 59,649 63,612 65,855 76,391 81,731 3,963 6.64% 2,243 3.53% 10,536 16.00% 5,340 6.99%

South Carolina 170,565 188,251 202,736 223,251 229,763 17,686 10.37% 14,485 7.69% 20,515 10.12% 6,512 2.92%

South Dakota 19,939 23,617 27,869 32,494 32,126 3,678 18.45% 4,252 18.00% 4,625 16.60% -368 -1.13%

Tennessee 337,346 369,375 402,036 423,066 435,282 32,029 9.49% 32,661 8.84% 21,030 5.23% 12,216 2.89%

Texas 761,749 853,360 969,546 1,037,745 1,092,584 91,611 12.03% 116,186 13.62% 68,199 7.03% 54,839 5.28%

Utah 102,134 106,552 112,502 119,520 123,566 4,418 4.33% 5,950 5.58% 7,018 6.24% 4,046 3.39%

Vermont 7,257 7,229 7,560 8,817 9,705 -28 -0.39% 331 4.58% 1,257 16.63% 888 10.07%

Virginia 167,336 200,074 209,782 221,168 229,044 32,738 19.56% 9,708 4.85% 11,386 5.43% 7,876 3.56%

Washington 279,419 299,024 313,499 326,745 333,673 19,605 7.02% 14,475 4.84% 13,246 4.23% 6,928 2.12%

West Virginia 39,578 42,136 45,064 47,883 49,898 2,558 6.46% 2,928 6.95% 2,819 6.26% 2,015 4.21%

Wisconsin 311,443 334,207 355,976 374,968 386,988 22,764 7.31% 21,769 6.51% 18,992 5.34% 12,020 3.21%

Wyoming 1,899 1,630 1,702 1,718 1,792 -269 -14.17% 72 4.42% 16 0.94% 74 4.31%

Grand Total 12,288,994 13,382,212 14,349,529 15,192,784 15,672,632 1,093,21

8 8.90% 967,317 7.23% 843,255 5.88% 479,848 3.16%

| March 2017

APPENDIX 2: MEDIGAP PENETRATION BY STATE

| March 2017

APPENDIX 3: INDIVIDUAL MA ENROLLMENT BY PRODUCT TYPE, 2013-FEB 2017

Product






Trend 2013-2014

% Growth

2013-2014

Trend 2014-2015

% Growth

2014-2015

Trend 2015-2016

% Growth

2015-2016

Trend 2016-

2/1/2017

% Growth 2016-

2/1/2017

Market Share 2017

HMO 5,807,939 6,271,125 6,806,900 7,371,711 7,702,560 463,186 7.98% 535,775 8.54% 564,811 8.30% 330,849 4.49% 49%

PPO 1,774,901 1,897,134 2,002,318 2,075,849 2,297,285 122,233 6.89% 105,184 5.54% 73,531 3.67% 221,436 10.67% 15%

HMO SNP 1,551,612 1,751,775 1,772,763 1,900,932 1,893,161 200,163 12.90% 20,988 1.20% 128,169 7.23% -7,771 -0.41% 12%

HMO-POS 1,172,291 1,208,024 1,251,334 1,203,835 1,137,945 35,733 3.05% 43,310 3.59% -47,499 -3.80% -65,890 -5.47% 7%

Regional PPO 894,992 975,221 1,001,052 1,072,489 1,069,106 80,229 8.96% 25,831 2.65% 71,437 7.14% -3,383 -0.32% 7%

Cost 389,834 433,639 499,401 549,645 553,345 43,805 11.24% 65,762 15.17% 50,244 10.06% 3,700 0.67% 4%

Medicare-Medicaid Plan 3,988 181,475 364,722 369,285 390,731 177,487 4450.53% 183,247 100.98% 4,563 1.25% 21,446 5.81% 2%

Regional PPO SNP 167,546 215,288 230,015 249,436 264,531 47,742 28.49% 14,727 6.84% 19,421 8.44% 15,095 6.05% 2%

PFFS 361,097 289,791 247,405 222,068 186,033 -71,306 -19.75% -42,386 -14.63% -25,337 -10.24% -36,035 -16.23% 1%

PPO SNP 83,248 67,142 75,830 82,529 77,785 -16,106 -19.35% 8,688 12.94% 6,699 8.83% -4,744 -5.75% 0.5%

HMO-POS SNP 48,574 51,328 53,286 56,229 59,256 2,754 5.67% 1,958 3.81% 2,943 5.52% 3,027 5.38% 0.4%

PACE 26,910 29,674 32,587 35,935 36,294 2,764 10.27% 2,913 9.82% 3,348 10.27% 359 1.00% 0.2%

MSA 6,062 11,466 11,916 2,841 4,600 5,404 89.15% 450 3.92% -9,075 -76.16% 1,759 61.91% 0.03%

Grand Total 12,288,994 13,383,082 14,349,529 15,192,784 15,672,632 1,094,088 8.90% 966,447 7.22% 843,255 5.88% 479,848 3.16% 100%

| March 2017

APPENDIX 4: NATIONWIDE DEMOGRAPHICS

Table 4: Nationwide Population by Age

Age 2017 Estimate % 2022 Projection % Growth

Percentage

Age 55 - 64 41,866,929 43,575,137 4%

Age 65 - 74 29,466,143 59% 35,735,178 60% 21%

Age 75 - 84 14,481,874 29% 16,651,167 28% 15%

Age 85 and over 6,327,357 13% 6,688,544 11% 6%

Age 65 and over 50,275,374 100% 59,074,889 100% 18%

Table 5: Nationwide 65+ Population by Singe Race Classification

Race Classification 2017 Estimate % 2022 Projection % Growth

Percentage

White Alone 41,915,872 81% 48,365,924 79% 15%

Black or African American Alone 4,378,458 8% 5,323,869 9% 22%

American Indian and Alaska Native Alone 275,259 0.5% 344,380 0.6% 25%

Asian Alone 2,095,015 4% 2,845,530 5% 36%

Native Hawaiian and Other Pacific Islander Alone 44,747 0.1% 60,860 0.1% 36%

Some Other Race Alone 967,617 2% 1,306,164 2% 35%

Two or More Races 2,095,015 4% 2,845,530 5% 36%

Total 51,771,983 100% 61,092,257 100% 18%

Table 6: Nationwide 65+ Population by Household Income

Household Income 2017 Estimate % 2022 Projection % Growth

Percentage

Income Less than $15,000 4,681,831 15% 4,959,902 14% 6%

Income $15,000 - $24,999 4,937,193 16% 5,256,875 14% 6%

Income $25,000 - $34,999 4,068,800 13% 4,462,151 12% 10%

Income $35,000 - $49,999 4,846,809 15% 5,464,407 15% 13%

Income $50,000 - $74,999 5,158,308 16% 6,018,033 16% 17%

Income $75,000 - $99,999 2,899,509 9% 3,540,783 10% 22%

| March 2017

Table 6: Nationwide 65+ Population by Household Income

Household Income 2017 Estimate % 2022 Projection % Growth

Percentage

Income $100,000 - $124,999 1,721,958 5% 2,202,989 6% 28%

Income $125,000 - $149,999 1,069,049 3% 1,465,746 4% 37%

Income $150,000 - $199,999 996,849 3% 1,400,571 4% 40%

Income $200,000 or more 1,231,077 4% 1,874,649 5% 52%

Total Households 31,611,383 100% 36,646,106 100% 16%

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