Medicare Advantage insurers navigate Part D turmoil

Regional health insurers are contending with a potential flood of new Medicare Advantage members after large national companies withdraw from the roiling Medicare Part D market.

These membership gains are a double-edged sword.

Related: MA market shake-up poses risky opportunities for small insurers

For some health insurance companies, this is an opportunity to grow their standalone Medicare Part D prescription drug plan, or PDP, books during the annual enrollment period that ends Dec. 7.

Blue Cross and Blue Shield of Alabama, a nonprofit with 31,000 members in Part D and 110,000 in Medicare Advantage, sees it that way, said Brent Carter, consumer sales manager.

“There has been competition that just pulled out of counties. We feel like we’ve gained an advantage over Aetna, United and Humana. We love it because now their members will be looking at our plans,” Carter said.

But other health insurance companies looking to maintain — or decrease — their exposure to Medicare Advantage could view this as yet another risk to confront during an already challenging period. Some portion of beneficiaries who don't like their Part D options for 2025 will opt for Medicare Advantage instead.

"Many insurers do not actually want that influx from standalone PDP," said Brooks Conway, an actuary at the consulting firm Oliver Wyman who specializes in Medicare Part D.

Unintended consequences

Fee-for-service Medicare beneficiaries buy standalone Medicare Part D prescription drug plans as wraparound coverage. Over time, fewer people have chosen that combination as Medicare Advantage benefits grew more generous, which has eroded the Part D market.

“I don’t expect anybody to be putting significant effort into trying to grow PDP membership over the forthcoming years,” said Sachin Jain, CEO of Scan Health Plan, a nonprofit insurer that has 278,000 Medicare Advantage members and does not sell Part D plans.

The trend away from Part D is likely to accelerate in the 2025 plan year, perhaps ironically because Congress and President Joe Biden beefed up the Medicare drug benefit in the Inflation Reduction Act of 2022.

The Inflation Reduction Act enhanced Medicare drug coverage and reduced some out-of-pocket costs for enrollees. That led to larger premium increases than usual, bigger deductibles, narrower formularies and tighter pharmacy networks despite a temporary stabilization program the Centers for Medicare and Medicaid Services offered insurers.

There are fewer Part D plans available than during any year since the program debuted in 2006, the health policy research institution KFF reported last month. Smaller insurers such as Blue Cross Blue Shield of Arizona, Regence and Mutual of Omaha got out of the Part D business entirely.

But national health insurance companies such as Centene, UnitedHealth Group subsidiary UnitedHealthcare, CVS Health subsidiary Aetna, Humana and Cigna, which dominate the Part D market, are responsible for most of the upheaval.

Humana canceled its jointly branded product with Walmart, for example.

Aetna has said it is willing to lose membership on standalone Part D plans and will not offer commissions to marketers that sign up new members for 2025. Centene will likewise not pay agents and brokers for selling Part D policies. By contrast, these insurers will compensate marketers that enroll beneficiaries into most, but not all, Medicare Advantage plans.

These marketing tactics reflect the fact that Medicare Advantage has the potential for higher profit margins than Medicare Part D, said Erin Trish, co-director of the Schaeffer Center for Health Policy and Economics at the University of Southern California.

Because Medicare Advantage insurers assume risk for medical and prescription expenses, they get more money from the government and have more control over members' total costs, Trish said. "It's just a much bigger set of dollars that you're talking about," she said.

Still, insurers are likely more concerned about members they gain from other Medicare Advantage carriers exiting markets than from beneficiaries abandoning fee-for-service Medicare and Part D for Medicare Advantage, said Brad Ellis, a senior director at Fitch Ratings.

Approximately 1.8 million Medicare Advantage members and 500,000 Part D enrollees will need to change plans because their current policies are not available next year, according to a Deft Research analysis of CMS data.

More than 133,000 Part D customers in California, Scan Health Plan's primary market, will need to shop for new coverage after insurers axed their policies, Deft Research reported. That's the largest number and the largest share of any state.

Scan Health Plan anticipates more Medicare Advantage members than usual will look for alternatives early next year when they discover their insurers scaled back pharmacy coverage, Jain said. Medicare beneficiaries have until March 31 to change the Part D and Medicare Advantage plans they select during the open enrollment period.

"There's going to be a number of folks who are going to go to their pharmacies and realize that their drug prices have changed, and they're going to have more exposure than they thought they were going to have upfront," Jain said.