Understanding the signals amid the noise: What’s really happening with Medicare Advantage?

In healthcare circles, the buzz continues: Providers are exiting Medicare Advantage (MA) arrangements in large numbers. An HFMA survey found that 19% of provider organizations stopped accepting one or more MA plans in 2023 with almost 60% of respondents either planning or considering a pause on one or more MA plans in the next 24 months.^a Elsewhere, a headline declares that providers are dropping MA plans “left and right,” citing excessive prior authorization denials and slower payments.^b Another news report documents that 32 health systems have either stopped accepting one or more MA plans in 2024 or announced plans to do so next year.^c

At the same time, survey results released in November by the Health Care Payment, Learning & Action Network (HCP-LAN) reflect a deepening industry commitment to MA, suggesting that providers are assuming greater financial accountability for total cost of care in MA populations.^d Meanwhile, 54% of the Medicare-eligible population are now enrolled in an MA plan, up from about one-third in 2016, attracted by low premiums, extra benefits (such as dental and vision coverage) and financial protection through out-of-pocket maximums.^e

How are we to reconcile these seemingly irreconcilable trends? Where is the signal amid all the noise?

Deciphering the mixed signals

With the MA market evolving in complex ways, a deeper dive into the data yields insights that can guide providers’ decisions about their MA strategies going forward.

Signal #1: Providers are choosing to assume more population health risk rather than deal with increasing payer utilization controls. Trends in the flow of payments through various MA alternative payment models (APMs) tell a story. HCP-LAN survey results for calendar year 2023 indicate a significant increase in population-based payments (category 4) and a corresponding decrease in shared risk/savings payments (category 3B), as shown in Figure 1.^f

Figure 1. Medicare Advantage spending trends in population-based payments and shared risk/savings payments (HCP-LAN categories 3B and 4)*

The bar graph below illustrates progress in the adoption of downside risk APM spending (Categories 3B-4) since 2018.

As shown in Figure 2, payments flowing through HCP-LAN category 3B — known as “upside rewards and downside risk” — dropped by about 5 percentage points, decreasing from 14.3% of total MA payments in 2022 to 9.0% in 2023. In this category, APMs retain fee-for-service (FFS) characteristics, that is, they still involve partnerships with payers and medical services are still paid at negotiated rates based on daily operations. At the end of a performance year, total FFS payments and any additional payments made to the provider are reconciled against preestablished total cost-of-care targets.

Category 4 APMs typically involve prospective payments or capitation, placing a great deal of administrative responsibility on the provider, who accepts the role as the primary risk-bearing entity (RBE). In these APMs, the provider is responsible for administering medical claims for services provided by downstream providers who are contracted as part of the network along with the RBE. Payments flowing through comprehensive population payment APMs (category 4B) increased from 19.8% of all MA payments in 2022 to 24.2% in 2023. Additionally, the percentage of payments in category 4C grew by about 5 percentage points, increasing from 1.8% in 2022 to 6.9% in 2023. In this category, labeled “integrated finance and delivery system,” responsibility for prior authorization rests with the provider/RBE by virtue of sponsoring the MA plan or by accepting fully delegated responsibility from an MA plan.

In the case of partnerships with delegated responsibility between a provider and an insurer, the nature of the partnership comes into focus. The ability of the insurer and provider to effectively support each other in an environment of transparency, with data partnerships that place equal accountability on the insurer and provider sides, are likely to determine if providers choose to stay in those arrangements.

Figure 2. 2022-23 payment changes in selected Medicare Advantage categories

The shifts in MA payments flowing through these APM models likely reflect movement away from models in which providers incur high administrative costs attributable to increasing payment denials and excessive prior authorizations.

Signal #2: More Medicare beneficiaries, particularly in markets nearing enrollment saturation, are prioritizing provider choice. The Medicare “gold rush” is slowing down, according to The Wall Street Journal (WSJ), which suggested that wealthier seniors, less concerned about out-of-pocket costs, may continue to prefer traditional Medicare for its greater choice of providers and types of care without prior authorization cost controls. One analyst interviewed for the WSJ article envisioned a flatlining of MA market penetration as enrollment reaches 75% in a given market.^g

Consumer preference for choice may be driving a shift in MA plan offerings from HMO to PPO plans, which feature a broader choice of providers, closer to traditional Medicare. As shown in Figure 3, the percentage of MA plans that operate as PPOs has increased significantly in the past five years, representing 43% of all MA plans in 2024, up from 31% in 2019. During this period, there was a corresponding decline in the percentage of traditional MA HMO plans, from 69% to 57% of the market.^h

The increase in PPO options signals that beneficiaries are increasingly preferring networks with more provider choice over narrower networks.

Figure 3. Share of PPOs and HMOs among Medicare Advantage plans, nationwide

Signal #3. Large MA insurers are experiencing higher costs and forecasting lower profits, despite increasing enrollment. A spike in medical expenses is prompting the largest MA insurers to make structural changes to their plans, according to Modern Healthcare. Among the larger MA insurers, Humana has experienced above-projections enrollment of newly eligible beneficiaries, while UnitedHealth Group has projected higher utilization to meet pent-up demand.ⁱ Other stressors on these plans include CMS’s change to the risk adjustment model, a decline in the MA benchmark rate and increased audit scrutiny, which collectively pose a challenge to health plan margins and may lead insurers to pare back supplemental benefits to preserve sustainability.^j

Strategic Implications

Taken together (with the caveat that HCP-LAN metrics are lagging indicators while media reports are leading indicators), these signals paint a seemingly confusing picture. Beneficiary enrollment has increased as MA plans have grown more attractive in premium pricing and supplemental benefits, in response to competition. At the same time, providers have grown increasingly weary of administrative overhead with these plans, particularly with increases in prior authorizations and denials, and appear to be exiting them.

In summary:

MA beneficiary demand is creating both headwinds and tailwinds for insurers. These plans are clearly experiencing headwinds, including provider exits; CMS policy changes, including the risk model change and benchmark rate decline; and enrollment slowdowns in certain markets. At the same time, they are being lifted by tailwinds, primarily significant ongoing enrollment growth across the senior population attracted by provider choice, low premiums, appealing supplemental benefits and out-of-pocket cost protections.

Providers will seek control over utilization by participating in viable plans with low insurer utilization control measures and other administrative overhead. Recall that a key point of distinction between the Category 3 and 4 HCP-LAN models is that payers make medical necessity decisions and are responsible for prior authorization decisions in category 3, while in category 4, the responsibility for prior authorization (and therefore utilization management) shifts to the provider in their role as the RBE. MA plan attrition that is reported by the media relates to PPO plans and those HMO plans administered by regional and national payers. These are likely category 3 plans, which operate on an FFS basis and are reconciled retrospectively. Providers are likely to continue to exit such plans, particularly with payers with high denial rates, utilization controls and high administrative overhead.

The choice to exit unviable plans could indicate intensifying competition between plans and providers for control of the premium dollar. Taken in aggregate with providers’ frustration with increased denials and prior authorizations, the data could also signal a calibrated move to accept greater accountability and population health risk, where feasible. This is a positive sign that providers are gaining a deeper and nuanced understanding of MA payment models and can distinguish models that provide sufficient funding to cover the increasing costs of care from those that are poorly funded or involve a large payer administrative overhead. They are therefore likely to exit plans with insurers that are poorly funded, or those that involve high administrative expense, leaving a smaller share of the premium to cover costs of care delivery.  This dynamic may result in increasing competition between plans and providers for control of the premium dollar, particularly in HMO plans.

In contrast to the popular narrative that providers are exiting MA across the board, HCP-LAN data signal a more nuanced move: Health systems will likely continue expanding MA participation and assumption of risk in HMO models while pulling back on participation in PPO models. Health systems are recognizing MA contract models that offer a pathway for better-funded programs that cover the cost of care delivery, and deliver better patient outcomes, while reducing administrative burden on physicians and clinical staff. At the same time, don’t be surprised to see beneficiary enrollment shift back to traditional Medicare in markets where prevalent PPO models lose provider support, and customers aren’t price sensitive.   

Will these shifts ultimately redraw the MA landscape? Maybe. The change in administration is likely to result in different policy choices that impact MA and APMs. Stay tuned for further developments in this rapidly evolving healthcare environment.

Footnotes

a. HFMA, HFMA Health System CFO Pain Points 2024: Margin Challenges & Opportunities for Vendors.
b. Emerson, J., “https://www.beckershospitalreview.com/finance/hospitals-are-dropping-medicare-advantage-left-and-right.html,” Beckers Hospital CFO Report, Dec. 14, 2023.
c. Emerson, J., “32 health systems dropping Medicare Advantage plans | 2024,” Beckers Hospital CFO Report, Nov. 19, 2024.
d. Health Care Payment Learning & Action Network, “Annual survey results measuring the progress of Alternative Payment Models across the industry” APM Measurement: Progress of Alternative Payment Models, 2024 Methodology and Results Report, Nov. 14, 2024.
e. Freed, M., et. al., “Medicare Advantage in 2024: Enrollment update and key trends,” KFF, Aug. 8, 2024.
f. Health Care Payment Learning & Action Network, “Annual survey results measuring the progress of Alternative Payment Models across the industry,”APM Measurement: Progress of Alternative Payment Models, 2024 Methodology and Results Report, Nov. 14, 2024.
g. Wainer, D., “The Medicare gold rush is slowing down,” The Wall Street Journal, Dec. 6, 2023.
h. Herro, N., et. al., “Mounting headwinds in Medicare Advantage market haven’t stopped growth: 2024 Medicare Advantage competitive enrollment report,” Chartis, March 5, 2024.
i. Tepper, N., “Medicare Advantage utilization spike hits Humana, UnitedHealth,” Modern Healthcare, June 16, 2023.
j. Berryman, L., and Tepper, N., “CMS finalizes Medicare Advantage rate cut,” Modern Healthcare, April 1, 2024.