Medicare Advantage insurers are laying off thousands of workers and tinkering with benefits in response to unfavorable Centers for Medicare and Medicaid Services policies.
To compensate for lower Medicare Advantage revenue, health insurers such as Elevance Health and Centene have made workforce reductions while companies such as UnitedHealth Group and Humana are scaling back benefits such as over-the-counter product allowances and increasing cost-sharing responsibilities for the 2024 plan year.
The layoffs are a much more impactful aspect of these insurance carriers' cost-cutting strategies than changes to benefits, said Scott Fidel, managing director at Stephens investment bank. “These companies are preferring, frankly, to find ways to take costs out of their own cost structure, including reducing headcount, and not really take much value away from their offerings as it relates to consumers,” he said.
In other words, Medicare Advantage insurers are prioritizing maintaining market share in the lucrative and growing program, despite regulatory changes that have dinged their revenue.
This year, CMS reduced the base rate paid to Medicare Advantage carriers by 1.1% for 2024, began phasing in a new risk-adjustment model that excludes 2,000 diagnoses that insurers and risk-bearing providers had used to catalog member illnesses, tightened audits, and made star ratings quality bonuses harder to earn.
CMS anticipates that Medicare Advantage enrollment will grow 7% to 33.8 million during open enrollment for 2024, which commenced last week and runs until Dec. 7. That would represent the slowest growth since 2017, according to data compiled by KFF.
Elevance Health laid off an undisclosed number of workers last month and paid nearly $700 million in severance during the third quarter, in addition to costs related to technology and office space, because it anticipated losing $500 million in star ratings bonuses for 2024, executives said on an earnings call last week. The insurer reduced its Medicare Advantage footprint by 4%, or 46 counties, for 2024, according to a Stephens report.
Centene likewise laid off 2,000 workers in September, in part because of headwinds related to the star ratings program. CVS Health subsidiary Aetna also partially blamed 5,000 layoffs this year on a ratings slip that led to a $1 billion loss in bonuses.
“Plans are trying to streamline headcount, and general administrative expenses, in order to preserve their benefits,” said Gary Taylor, managing director and senior equity research analyst at the TD Cowen investment bank.
Other insurers are looking to simplify their benefits administration and scale back services that are complex and costly to administer.
Elevance Health, UnitedHealth Group, Aetna and Humana declined to make executives available for interviews. Centene did not respond to an interview request.
Most Medicare Advantage carriers are increasing out-of-pocket costs for members in 2024, according to the Stephens survey. On average, the cost-sharing cap will be 8.6% higher at $5,476, the bank found.
Humana, the second-largest Medicare Advantage insurer with nearly 5.8 million enrollees, increased its out-of-pocket maximum to $6,039, up 10.2% from the current plan year, for example. Humana also reduced its over-the-counter products allowance by 58.4% to $33, according to Cowen. Humana made these changes in response to lower payments, a spokesperson wrote in an email.
Industry leader UnitedHealthcare—which covers more than a quarter of the market with more than 7.6 million enrollees—likewise reduced its over-the-counter allowance by 26.1% to $17, according to a Cowen report. Parent company UnitedHealth Group laid off an undisclosed number of employees at its Optum provider subsidiary in August.
Skimpier supplemental benefits such as over-the-counter allowances for consumer healthcare products will likely lead Medicare beneficiaries to switch carriers in search of better coverage, Taylor said.
"If you're looking at this cash-like benefit that's $200 a month, and they just cut it to $150, you're probably not going to automatically renew," Taylor said. "You might shop around and see if anybody else has a better offering."
Similarly, the number of health plans covering in-home support services declined by one-third from 2023, with 15% of health plans offering this benefit next year, according to data the consulting company ATI Advisory provided to Modern Healthcare.
“The lower level of growth in benefits this year may be simplification on the part of plans, or they may be reducing the scope and generosity of supplemental benefits they’re offering as a response to the payment rates released earlier this year alongside changes to star ratings calculations and the risk-adjustment model used,” said Bill Winfrey, a director at ATI Advisory.
In written statements, UnitedHealth Group and Humana emphasized their focus on retaining and simplifying benefits that members value most, such as zero-premium plans. About three-quarters of Medicare Advantage enrollees will choose zero-premium policies for next year, up slightly, according to Cowen.
Most insurers also continued to expand supplemental benefits available in Dual Eligible Special Needs Plans for people with both Medicare and Medicaid. D-SNPs represent the fastest-growing area of Medicare Advantage enrollment, and CMS pays insurers a higher rate for these members.
“It looks like they're willing to accept a margin headwind and be less profitable just to pursue growth,” Taylor said.