Why some Medicare Advantage plans will get skimpier and costlier

“I think the landscape is going to change. Medicare Advantage will have less perks and be less attractive to people,” says Marvin Musick, cofounder and chief educator of Medicareschool.com and a Medicare broker.

That would be quite a reversal, considering that the 21-year-old Medicare Advantage program has become so popular, more Medicare beneficiaries are now in these plans than in traditional Medicare. Enrollment has more than doubled since 2010, according to KFF, a health research firm.

The vise tightens on Medicare Advantage insurers

But some of the nation’s biggest Medicare Advantage plans are feeling a financial pinch. Consider:

• Humana, the second-largest Medicare Advantage insurer, recently sharply cut its earnings-per-share projections for 2024 and 2025 citing unprecedented cost surges. A fourth-quarter 2024 loss due to higher Medicare Advantage usage caused its stock price to trade near a four-year low.
• Karen Lynch, the CEO of CVS Health, which owns Aetna (the third-largest Medicare Advantage insurer), said in an earnings call that the Centers for Medicare and Medicaid Services (CMS) proposed 2025 funding level “was broadly consistent with our expectation, which we do not believe is sufficient to cover current medical cost trends.” The company, which is a sponsor of Fortune Well, believes its Medicare Advantage business will be only marginally profitable this year.
• On a recent earnings call, the chief financial officer of Centene, the sixth-largest Medicare Advantage insurer, said Medicare Advantage “products may be a little bit less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”
• In January 2024, Cigna (the eighth-largest Medicare Advantage insurer) announced plans to get out of the business, agreeing to sell its Medicare Advantage plans to Health Care Service Corp., a Blue Cross Blue Shield insurer. Cigna had earlier tried to purchase Humana.

What’s causing the problems

“The difficulties we’re seeing are related to a convergence of pressures from the federal government, or CMS, and changing the rules a little bit, says Bradley Ellis, senior director of North American Insurance Ratings for the Fitch Ratings service. He’s talking about CMS’s proposed base payment cut of 0.16% to Medicare Advantage plans.

Another stress for some Medicare Advantage insurers: higher-than-expected utilization rates. This, Ellis noted, has been a response to pent-up demand for elective procedures during the pandemic.

“It started in the second quarter of 2023,” he says. “There had been a lot of the deferred care during the pandemic, when people were resistant to go into medical facilities to have, say, a hip replacement surgery done—out of fear of contracting COVID-19.”

A prior-authorization crackdown

Another pressure Medicare Advantage insurers are facing is a CMS crackdown on prior-authorization rules. Typically, Medicare Advantage plans keep costs down by requiring beneficiaries get prior authorization before they can be approved for medical procedures and treatments and denying some of those requests.

But Congress and Medicare Advantage experts have raised growing concerns about prior authorization, leading the Biden administration to implement restrictive rules, with additional ones starting in 2026.

Despite the tightening financial vise, the Biden administration recently referred to the Medicare Advantage program as “robust and stable.”

Plentiful Medicare Advantage choices

Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund, a health care research foundation, doesn’t disagree. “We still see many insurers across the country offering Medicare Advantage plans. It doesn’t seem that your average beneficiary suffers from a lack of choice of plans,” she says.

Ellis noted that the financial strength of many large health insurers offering Medicare Advantage plans is very good. But some insurers, he added, aren’t making any money in this business. The Affordable Care Act limits profit margins for Medicare Advantage insurers.

How Medicare Advantage members could feel the pinch

Because Medicare Advantage plans might not be quite as strong as they have been, some beneficiaries might find their zero-premium plans charging premiums in 2025 or their co-payments and deductibles rising, experts says.

Already, 12% of people in Medicare Advantage plans said they couldn’t afford care because of co-payments or deductibles, according to a new Commonwealth Fund report.

Medicare Advantage beneficiaries could also see some plan benefits getting trimmed or disappearing, which might disappoint them. “I think for beneficiaries, what you might see out of all of these things coming together is maybe a tightening of benefits,” says Ellis.

Any changes in Medicare Advantage plans won’t occur in 2024, Jacobson says, because they can’t change their pricing or coverage midyear.

The only thing that can change during the year is the plan’s network of doctors and hospitals. “Hospitals are dropping out of Medicare Advantage plans left and right,” says Musick. That’s especially true for not-for-profit hospitals.

Looking beyond 2024

You can probably expect Medicare Advantage benefit reductions, price increases, or both for 2025 and 2026. “I think there will be a fair amount of confusion as these benefits change over the next year or two,” says Ellis.

When Medicare Advantage open enrollment for 2025 begins in October, people looking to either get into these plans or switch among them will want to take a very close look when comparing costs and coverage.

“It’s going to be a little more daunting than it normally is,” says Ellis.

The Medicare site’s plan finder tool for Part C plans (Part C is the official name for Medicare Advantage plans) can help you see benefits and costs of plans for 2025.

Medicare Advantage beneficiaries who decide they want to get out of the program entirely and switch to traditional Medicare may encounter a serious problem though, says Musick.

“They’ll need to qualify if they want to buy a Medicare supplement, or Medigap, plan—unless they live in one of four states. If they don’t qualify, due to a medical condition, they will be stuck with Medicare Advantage.”