As insurance companies prepare their bids to Medicare for Medicare Advantage (MA) plan offerings for 2025, which are due in early June, insurers are signaling that for a variety of reasons, plan benefit packages in 2025 might be reduced from this year.
A recent Wall Street Journal article titled “The Medicare Bubble Has Burst” by David Wainer (May 17, 2024) with the sub-heading “The government health-insurance program had been a gold mine for private insurance – until recently” describes how “for years, [MA] business generated outsize profit growth for health-insurance giants.” The article states:
But the gold rush is over for investors, at least for now. After years of reports, lawsuits and whistleblower accounts accusing big insurers of gaming the system and overcharging the government, the Biden Administration has made a series of policy changes that have negatively affected what the plans get paid. Meanwhile, a post-Covid surge in seniors’ medical costs caught insurers by surprise.
Unlike another recent WSJ editorial, discussed in this CMA Alert (May 2, 2024), the article addresses MA overpayments by highlighting that “critics point to studies showing that Medicare Advantage plans cost the government and taxpayers billions of dollars more than traditional Medicare.”
People Actually Using Care = Bad for Insurer Profit
As insurers reported their first quarter earnings, a consistent theme was that there was higher-than-expected utilization of health care services which has impacted plan profits. As described by Healthcare Dive in an article titled “Medicare Advantage unrest, Change Healthcare fallout and more big takeaways from insurers’ Q1” by Rebecca Pifer (May 13, 2024), this increased use of health care amounts to “utilization pressures”, “MA turbulence” and “surging medical expenses”. Under the heading “MA utilization catches some flat-footed”, the article states:
Payers continued to jostle with a dogged increase in medical spend as more seniors in Medicare Advantage plans seek out healthcare following the COVID-19 pandemic. Utilization started to tick up early last year and remained elevated in the quarter, reflected in outpatient services like radiology and cardiovascular procedures for Elevance, or mental health and medical pharmacy for CVS, for example.
Despite insurance industry hand-wringing about more people using more health care services, if people who need health care are able to access it through their MA plans despite widespread and onerous prior authorization restrictions – isn’t that a desirable outcome? From a societal standpoint, but apparently not for purposes of MA plan profits.
Extra Benefits in MA, Used to Drive Enrollment Growth, Likely Reduced by Insurers in 2025
A recent STAT News article titled “CVS is Willing to Dump 10% of its Medicare Advantage Members Next Year” by Bob Herman (May 14, 2024) notes that:
Over the last several years, health insurers have prioritized growing their Medicare Advantage membership rolls — often by advertising $0 premiums, dental, vision, and other new supplemental benefits — even if it has meant lower short-term profits. That strategy backfired most notably for Humana and now CVS.
Similarly, the Wall Street Journal article referenced above states that “To gain market share, CVS-Aetna offered generous plans this year […] the move paid off in terms of membership count.”
However, as noted by the Healthcare Dive article referenced above, insurers plan to take a different approach to 2025 plan benefits in light of recent increased plan spending – due to people using plan benefits. According to the article, “Lower 2025 payment rates than insurers hoped from regulators in Washington looking to crack down on bad actors in the privately run Medicare program aren’t helping, either.” The article states that “In light of the challenges, insurers plan to focus on profits over growth, taking actions like cutting benefits, raising premiums or even exiting markets” [Emphasis added].
In other words, rather than continuing to use their considerable overpayments to offer supplemental benefits aimed at maximizing enrollment, insurers are indicating that they must cut back (or leave entire markets) in order to maintain their steady profits.
For example, the STAT News article cited above focuses on insurer CVS, quoting company officials:
“The goal for next year is margin over membership,” CVS CFO Tom Cowhey said at the conference, hosted by Bank of America. “Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible. And that’s OK, because we need to get this business back on track.” [Emphasis added.]
The article goes on to note:
CVS is pivoting to focus on increasing profits within its Medicare Advantage plans by cutting some of its benefits. By getting rid of some of the extra bells and whistles, CVS and other insurers eliminate the expenses tied to those benefits — and with that, drive away the people who needed or wanted to use them.
Using the same “margin over membership” quote from CVS’ CFO, the Wall Street Journal article states that with respect to plan offerings next year “CVS and others said they are planning to exit some counties and cut back on things such as vision benefits to boost margins.” The article continues: “By all indications, other large players such as Humana will also be shifting from growth to profits.”
Similarly, Healthcare Dive quotes Humana’s CFO as saying that MA payment rates for 2025 “‘will require larger benefit reductions to achieve stable margins’” The article goes on to quote an industry analyst: “[TD Cowen analyst Gary] Taylor noted all major MA insurers will likely earn ‘materially below’ target margins this year, and ‘will be compelled to cut supplemental benefits materially’ for 2025. That could reshape current MA market share.”
Conclusion
After pointing out that MA profits might not be as high in the future as they historically have been, the Wall Street Journal notes that “while declining profit expectations have negatively affected share performances, there are still plenty of profits to be made.” Similarly, Healthcare Dive points out that: “Importantly, insurers are still notching profits — just not as high as they would like, and not enough to satiate Wall Street’s demand for growth in MA, a program that’s historically brought in significant earnings.”
Used to Medicare Advantage being an enormous profit driver, insurers, faced with people actually using needed health care along with less payment than they desired – but still more for 2025 than current levels – are warning the public that benefits cuts are inevitable, and placing the blame elsewhere.
However, it appears that the industry’s desire to continue to maximize profits or “margins” is taking precedence over providing supplemental benefits to their enrollees. Reducing discretionary extra benefits are business decisions aimed at boosting profitability – not clinical determinations of plan enrollees’ needs. When MA plans introduce their 2025 plan benefit packages this fall, and proclaim that they have no choice but to cut benefits, remember – what extra benefits they offer is completely in a plan sponsor’s discretion. Don’t let the insurance industry place the blame anywhere else.
Other Medicare Advantage News
- KFF issued a report titled “In 2024, A Majority of States Offer Medicare Advantage Plans to Their State Retirees, with 12 Offering Medicare Advantage Exclusively” (May 2024)
- New York City retirees, who have been fighting the city’s plan to force them into a Medicare Advantage plan, recently won a court victory – the Appellate Division of the state Supreme Court upheld a ruling from a lower court last year that blocked the move (see, e.g., Daily News “Adams administration to bring Medicare Advantage push before N.Y.’s top court” by Chris Sommerfeldt (May 21, 2024)
- Physicians for a National Health Program (PNHP) have released a report titled “How Corporate Health Insurers Harm America’s Seniors” (May 23, 2024)
May 23, 2024 – D. Lipschutz