Jessica Linart was shocked at the Medicare Advantage premiums insurers proposed for covering retired Colorado civil servants next year.
Linart, director of insurance for the Colorado Public Employee Retirement Association, had grown accustomed to health insurance companies making competitive bids for group Medicare Advantage contracts. In the past, insurers pitched multiyear deals that locked in affordable rates. Not this time, she said.
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“None of the carriers were as aggressive,” Linart said. Indeed, premiums were about double what the Colorado Public Employee Retirement Association, which covers 63,000 people, paid under its previous three-year contract, she said.
Some employers are reevaluating group Medicare Advantage after big premium increases sparked pushback from retirees. Insurers scaling back on Medicare Advantage and providers refusing to participate in Medicare Advantage networks — factors that affect the whole program — intensify the challenges government plan sponsors face.
These concerns have left some employers wondering whether it’s time to abandon group Medicare Advantage and move retirees to Medigap plans that supplement fee-for-service Medicare, or to vouchers for individual Medicare Advantage policies, said Marta Green, executive director of the National Institute for Public Employee Health Care Policy, a think tank funded by insurers including UnitedHealth Group, Humana and CVS Health.
“We have not seen, with the public sector plans, discussions about rising cost pressures like this before. There's a lot of concern and a lot of worry about group MA,” said Green, a former executive at the California Public Employees Retirement System.
Employers have offered group Medicare Advantage plans since the 1990s, then called Medicare+Choice, lured by the promise of predictable, flat monthly fees versus open-ended financial commitments to self-insured retiree health plans.
This year, 56% of large employers with retiree health benefits utilize Medicare Advantage, more than double the share from 2016, the health policy research institution KFF found in a survey of employers. Group Medicare Advantage enrollment grew 83.8% to 5.7 million over that period, according to a separate KFF analysis of Centers for Medicare and Medicaid Services data.
Most group Medicare Advantage members are retired civil servants, according to the National Institute for Public Employee Health Care Policy. Sixty-five percent of public sector employers provide retiree health benefits, compared with 10% of for-profit companies and 19% of nonprofit employers, the KFF survey determined.
Group Medicare Advantage plans can give carriers opportunities to manage stable populations over several years, which helps them predict and manage costs. The longer duration comes with a disadvantage for insurers, however, because they can't raise premiums each year to compensate for changes in the market.
That's why Aetna has less room to maneuver its group Medicare Advantage business when costs rises than it does in the individual Medicare Advantage market, Tom Cowhey, chief financial officer of Aetna parent company CVS Health, told investors last month. The insurance subsidiary may incur additional losses this year because it cannot amend its group Medicare Advantage contracts, he said. Aetna declined to comment.
Enhancements to the Medicare Part D prescription drug benefit, which also apply to Medicare Advantage plans with pharmacy coverage, have squeezed insurance companies, and group Medicare Advantage plans may see greater effects.
Under the Inflation Reduction Act of 2022, retirees in group Medicare Advantage plans are permitted to count their former employers' contributions toward the annual $2,000 out-of-pocket spending cap.
That could translate into higher costs for insurers, which would be passed on via premium increases, said Brooks Conway, an actuary at the consulting firm Oliver Wyman who specializes in Part D. “It has a negative impact where it encourages people to use brands instead of generics because they're going to hit the maximum out-of-pocket faster,” he said.
As in the individual market, insurers pulling back from Medicare Advantage in some geographic areas forced employers to scramble for alternatives.
The Employees’ Retirement System for Kansas City, Missouri, for instance, needed a new carrier for its 3,000 enrollees because Blue Cross and Blue Shield of Kansas City announced it would not offer Medicare Advantage in 2025. The city opted for a UnitedHealthcare Medicare Advantage plan from UnitedHealth Group, according to a notice the Kansas City Human Resources Department distributed to retired employees.
Kansas City municipal retirees saw average monthly premiums jump more than sevenfold to $269, and had half as many plans from which to choose. Retirees could instead select a Medigap plan to wrap around traditional Medicare. The City of Kansas City did not respond to an interview request.
The Colorado Public Employee Retirement Association reviewed bids from four Medicare Advantage insurers for 2025, Linart said. In the end, it retained a UnitedHealthcare PPO, even though premiums more than doubled to $349, and an HMO from Oakland, California-based Kaiser Permanente that costs $170 per month, the same as this year.
About 15% of Colorado’s 63,000 public sector retirees switched from UnitedHealthcare to Kaiser Permanente during the annual enrollment period that ended Dec. 7, which is a higher degree of churn than usual, Linart said. Not that these retirees were satisfied with their options, she said.
“They were very concerned, asking, ‘Why was there such a dramatic premium increase?’ and ‘Could we do more to negotiate?’” Linart said. “When you’re living on a fixed income, it's concerning. There's some uncertainty still in what the future of Medicare Advantage might look like."
