The health insurance industry sees things differently. Trade groups AHIP and the Blue Cross Blue Shield Association contend CMS' portrayal fails to depict the full reality, which includes slimmer supplemental benefits, higher prescription drug deductibles and larger annual out-of-pocket cost caps.
"It is clear that national averages don’t show the full story with highly variable consequences of two consecutive years of cuts to MA for seniors, including the reduction in coverage choices, higher costs and reduced benefits that seniors may experience depending on where they live,” an AHIP spokesperson said in a statement.
Medicare Advantage carriers such as Humana, UnitedHealth Group subsidiary UnitedHealthcare and CVS Health subsidiary Aetna scrambled to redesign their plans and reassess their geographic footprints after a challenging 18 months, during which investors exhorted companies to restore the once-huge margins in this market, even at the expense of lower memberships.
Health insurance companies have endured higher-than-expected medical utilization, a federal rate cut, tightened screws on risk-adjustment payments, lower star ratings and stricter marketing rules, all of which combined to make the Medicare Advantage business less profitable.
Underscoring these challenges, leading companies continue to brave significant business pressures as they strive to remediate their Medicare Advantage finances.
Humana is bracing for an immense drop in star ratings while UnitedHealth Group is suing CMS over allegedly inaccurately downgrading a star rating. CVS Health is conducting layoffs and reportedly weighing options to improve financial performance, including breaking apart its pharmacy and insurance segments.
“I kind of characterize the Medicare Advantage program right now as sort of a perfect storm,” said Brad Ellis, senior director at credit agency Fitch Ratings. “So many companies are facing stress now in this business.”
Insurers scrapping current Medicare Advantage plans and abandoning less lucrative regions will send more than 7% of beneficiaries, or about 2 million people, back into the marketplace to choose new coverage, according to an analysis by the healthcare consulting company ATI Advisory. Each year since 2020, fewer than 100,000 people, or 1.5% of members, were unable to retain their previous policies, ATI Advisory reported.
“Seniors will have other plan choices to go to, but what will those choices be and might they be choices that still have the higher out-of-pocket costs or fewer benefits?” said Mary Beth Donahue, president and CEO of Better Medicare Alliance, a coalition of health insurers, providers and patient advocacy organizations.
The biggest Medicare Advantage insurers made only modest adjustments to their geographic markets overall, so the most notable changes for 2025 involve benefits. Although Medicare Advantage plans must offer a suite of benefits that aligns with fee-for-service Medicare, they have leeway to tweak optional benefits to reduce spending.
Nearly all plans will continue to cover vision, dental and hearing, although Aetna is shrinking dental allowances after reporting high utilization, TD Cowen reported.
But Medicare beneficiaries may find fewer plans with the kinds of extra perks that enabled insurers to draw so many people away from traditional Medicare, so these rollbacks come with risk, said Allison Rizer, executive vice president of payer solutions at ATI Advisory.
“It is really difficult to offer a benefit and then pull it back if your membership demands it,” Rizer said. “The market is demanding certain benefits. How do I continue to offer those benefits in some instances with fewer dollars?”
Popular benefits such as fitness and non-emergency medical transportation will be less widespread in 2025. Coverage for over-the-counter healthcare products, remote access technologies and utilities such as nurse hotlines and health education tools will see some of the steepest reductions, according to ATI Advisory.
OTC benefits will be available on 78% of plans versus 87% this year, and remote access benefits will be available for 52% of plans versus 72%, ATI Advisory reported.
Aetna and Humana made the biggest cuts to OTC coverage while UnitedHealthcare kept them mostly stable, according to the TD Cowen analysis. Aetna’s average per member, per month OTC benefit dropped from $52 to $18, and Humana’s decreased from $33 to $17.
Insurers including UnitedHealthcare, Elevance Health and Cigna hiked prescription drug deductibles. The average pharmacy deductible will rise from $147 to $394, a 167.3% increase, according to an analysis by the investment bank Stephens.
Likewise, Stephens reported that the average annual out-of-pocket maximum will go up from $5,476 to $6,610, a 20.7% increase.
“The Medicare Advantage (MA) market is currently facing one of its most difficult business cycles since the program's current model was established ~20 years ago,” Stephens Managing Director Scott Fidel wrote in a note accompanying the report.
This Medicare open enrollment period, which runs Oct. 15-Dec. 7, may not be as volatile as some anticipated.
Yet the actions insurers have taken to improve profitability won't immediately turn the market around for the companies with the biggest problems, according to Julie Utterback, a senior equity analyst at Morningstar. Next year could be an opportunity for rivals seeking to add customers, however, she wrote in an email.
“The margin profiles of key firms like Humana and CVS will remain below-target for the next several years, including 2025. As those firms lose membership, there may be room for companies like UnitedHealth and Elevance to gain market share in this important insurance market,” Utterback wrote.
“If I'm a health plan and I'm thinking about the potential for volatility, I would be looking very closely at competitive market changes in my target markets — even more so than in previous years — and I would be quickly refining my sales strategy at a county level,” Rizer said.