How to respond to Medicare Advantage’s rising headwinds

In recent years, the Medicare Advantage (MA) program has enjoyed rapid membership growth. About 33 million Americans — or 54% of all Medicare-eligible individuals — are currently enrolled in MA, according to a recent Kaiser Family Foundation analysis.^a

For providers and payers that participate in MA, success is predicated on facilitating a virtuous cycle: a chain of events in which one desirable outcome leads to another. In theory, increased margins for payers enable reinvestment to grow membership and better manage health outcomes, which leads to further reinvestment that continues the cycle.

However, MA’s era of tailwinds and uninterrupted growth is beginning to fade. Providers and payers are experiencing headwinds that are increasing contention and uncertainty.

Balance of power TILTS to providers from payers

MA membership had been buoyed by such factors as:

• A growing eligible population as baby boomers continue to age into Medicare eligibility
• Affordable benefit packages with low or zero monthly premiums
• Supplemental benefits not available in traditional Medicare
• Regulatory changes providing for more flexibility in plan and member design
• Consumer-centric programs and care models
• Marketing and sales efforts that have increased through direct mailings, telemarketing and online advertising

Recently, though, providers are beginning to experience losses related to their MA participation, as their contractual yields decrease and authorizations for care have become more restrictive.

As a result, we are observing a pronounced shift in power within MA relationships. Some providers are going out of network from MA plans, while some have asked CMS to investigate administrative denials.^b Nineteen percent of health system CFOs say they stopped accepting one or more MA plans in 2023. In addition, 61% either planned to do so in 2024 or are considering doing so, according to a March 2024 survey by HFMA and Eliciting Insights.^c

Payers are also facing headwinds from CMS. Only 8% of plans received a five-star rating from CMS for 2024, down from 22% in 2023. CMS has confirmed plans for rate cuts in 2025, with critics arguing that benefits for beneficiaries may become more limited.^d

At the same time, there are signs that MA members are utilizing care at higher rates, leading to increased costs and further contention between payers and providers.^e

MA profitability difficult to measure

Ultimately, providers possess the care delivery, quality improvement and risk-coding capabilities that are required for MA success and are usually looking for a fair deal from their payer counterparts in exchange.

However, providers find it still difficult to measure profitability in their MA segment.

In our experience, many providers negotiate the rate they receive from MA payers — which is usually close to or slightly more than 100% of Medicare reimbursement — without fully accounting for the factors that ultimately drive the bottom line.

A more sophisticated profit-and-loss dashboard for participating MA providers might include a range of metrics related to revenue, prior authorizations, care delivery costs, denials and administrative costs.

Payer composition is evolving

As pressure on MA margins builds, some publicly traded, national for-profit insurance companies are retreating from select markets. According to a recent Modern Healthcare analysis, Aetna anticipates losing up to 10% of its MA membership in 2025, while Humana envisions a 5% cut.^f

These cutbacks present an opportunity for not-for-profit regional insurers in markets where the major for-profit players are scaling back their presence.

Collaborating for value

Despite current challenges and evolutions, many providers and health plans believe they need to continue to participate in, and even prioritize,  MA because of the program’s scale and overall benefits. Given the high cost of caring for Medicare enrollees, value-based care initiatives focused on improving population health are critical to successful MA participation for providers, payers and the communities they serve.

Value-based care can take on a wide range of forms, depending on the amount of risk providers are willing to assume and the partnerships’ risk-related capabilities. The full continuum of value-centric collaborations runs the gamut from shared savings contracts with no downside risk for providers to full vertical integration into a single organization.

According to a JAMA study of more than 300,000 Medicare Advantage beneficiaries, members in value-based care MA arrangements with risk for both payers and providers had lower rates of inpatient admission, emergency department visits and readmissions.^g In addition, CMS’s robust risk-scoring model helps ensure that providers are fairly reimbursed for the true cost of care.

Three future-state scenarios

As MA plans and their provider partners take stock of a shifting market after years of growth and favorable attention, we anticipate three possible future state scenarios. These possibilities can be applied to both the national and regional markets.

Scenario 1: A renewal of growth. Better sense prevails, and plans and providers collaborate to address the core issues facing the program. Apause/adjustment in the market is followed by a period of renewed growth. From a national standpoint, this scenario is contingent on neutral-to-favora ble regulatory treatment.

Scenario 2: Uneasy stabilization. Contention is partially resolved through some degree of collaboration between payers and providers. This scenario is also dependent on neutral-to-favorable regulatory treatment.

Scenario 3: Implosion. High levels of contention continue, and more providers go out of network. Middle-income Medicare members opt out of MA and go back to traditional Medicare when feasible. This scenario accounts for heightened regulatory pressure on risk adjustment and utilization management practices, which further pressures margins.

Not going away

MA still accounts for more than half of all Medicare beneficiaries — a patient population that every healthcare organization must engage in some form or fashion.

As providers and payers decide how to approach the program — and each other — amid uncertainty and contention, the path forward can appear unclear.

However, those healthcare leaders seeking to emerge from the current environment of MA tension will play a major role determining which of the above three scenarios comes to fruition.

Ultimately, organizations must be able to develop a business model that delivers high-quality care and manages per capita costs — and also, critically, must find` ways to work through today’s concerns with other MA stakeholders and partners. 

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Footnotes

a. Freed, M., Fuglesten Biniek, J., Damico, A., and Neuman, T., “Medicare Advantage in 2024: enrollment update and key trends,” Kaiser Family Foundation Issue Brief, Aug. 08, 2024.
b. Letter to Chiquita Brooks-LaSure, administrator, CMS, March 21, 2024.
c. HFMA and Eliciting Insights, HFMA health system CFO pain points study 2024, March2024.
d. CMS, Fact sheet 2025 Medicare Advantage and Part D rate announcement, April 1, 2024; and Goldman, M., “Medicare Advantage plans to see 2025 base pay fall,” Axios, April 2, 2024.
e. Berryman, L., “What insurers got wrong about Medicare Advantage costs,” Modern Healthcare, Aug. 21, 2024.
f. Tepper, N., Berryman, L., “Humana, Aetna likely to lose Medicare Advantage members,” Modern Healthcare, May 14, 2024.
g. Cohen, K., Ameli, O., Chaisson, C., et al., “Comparison of care quality metrics in 2-sided risk Medicare Advantage vs fee-for-service Medicare programs,” JAMA Network Open, Dec. 12, 2022.