Since June 2023, UnitedHealth Group, Aetna owner CVS Health, Humana, Elevance Health, Centene and Molina Healthcare have taken turns sounding the alarm about Medicare Advantage enrollees seeking more healthcare. The reasons are myriad and complex, and some companies have weathered the storm better than others.
Medicare Advantage carriers have variously called out elevated use of outpatient services, inpatient care, supplemental benefits and pharmacy benefits for dinging their finances and frustrating Wall Street.
“What makes this hard is all these things are coming together, and it's not one type of care, it's not one specialty. But it is adding together to say we're seeing significantly higher admissions and usage across both facility and profession,” said Andy Davis, a principal for Deloitte Consulting’s healthcare practice.
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Pinpointing the exact reason Medicare Advantage has underperformed is nearly impossible, said Matthew Fiedler, senior fellow at the Brookings Institution Center on Health Policy.
“You can imagine [a company] got the impact of two-midnight exactly right, but there are 1,000 other factors that go into the underlying trend in utilization, and they got some of those wrong,” Fiedler said. “Who knows which of the 1,000 they got wrong?”
The health insurers named in this story and the health insurance trade group AHIP declined to answer questions about why higher Medicare Advantage costs and utilization caught the sector off guard.
Here are five factors that could be driving utilization and cost trends in Medicare Advantage.
Regulatory changes
Insurers including Humana are likely figuring out how the two-midnight rule, which went into effect in January, is affecting inpatient admissions. The rule mandates that insurers cover inpatient stays when providers expect patients to remain in a hospital for at least two midnights. In addition, the new risk-adjustment model, which began phasing in this year, means greater scrutiny of payments to insurers.
Although insurers knew regulatory changes related to the two-midnight rule and risk-adjustment were coming, that doesn’t mean predicting the impact was easy, said Joyjit Choudhury, managing director at healthcare consultancy Kaufman Hall. But they have probably learned from recent experience, he said.
“There's a short period of time where it's really hard to make accurate predictions, but at some point that tails off a bit, becomes a bit more stable ... and you become better at pricing,” Choudhury said.
COVID-19 effects
Now past the worst of the COVID-19 pandemic, insurers are seeing utilization tick up as Medicare beneficiaries seek delayed care, Rebecca D’Amico, vice president of strategy at the Blue Cross Blue Shield Association, said in a statement.
Experts also suspect some Medicare Advantage members who put off care may be finding they’re sicker than if they had sought treatment sooner. Also, as hospital labor issues improve, more patients may be able to make appointments.
Payer-provider relationships
Payer-provider relationships growing more contentious could now be showing up in insurer financials.
This year, there have been at least 40 public contract disputes between payers and providers, 62.5% of which involved Medicare Advantage plans, according to data compiled by FTI Consulting. Big health systems such as Chicago-based CommonSpirit Health, Nashville, Tennessee-based HCA Healthcare and San Diego-based Scripps Health have said they’re taking firm stances during talks with insurers over payments and other issues.
“These disputes get resolved typically with payers being a little bit more accommodative” Choudhury said. That could mean providers securing more lenient prior authorization policies, fewer denials and higher reimbursement rates, he said.
Yet S&P Global Ratings predicts that insurers will curtail reimbursements as they seek to right the Medicare Advantage ship.
"We expect large insurers will use their scale and market clout to limit provider rate increases over what will prove to be a challenging contract negotiation season," S&P analyst David Peknay and colleagues wrote in a research note last Thursday. "Providers already face rate pressure. However, if already elevated utilization rates remain high for an extended period, we would expect payors to further squeeze payments to providers."
Drug pipeline
Insurance companies such as Aetna have called out higher pharmacy costs among their Medicare Advantage members, which could reflect the growing pipeline of new medications coming to market, including the respiratory syncytial virus, or RSV, vaccine, diabetes and weight loss drugs, and specialty medications.
“When you think of the Medicare population and the treatments that are now hitting the market, there are now more expensive therapies available to treat this population,” said Marty Anderson, chief strategy and business development officer at Group Health Cooperative of South Central Wisconsin, a nonprofit insurance company.
Change Healthcare aftermath
The cyberattack on UnitedHealth Group unit Change Healthcare delayed claims processing for insurers using the system. Insurers including UnitedHealthcare and Blue Cross and Blue Shield carriers also suspended some care management protocols to ease provider burdens, which may have inflated spending.
“You have that event and then you have a whole lot of uncertainty because you're not able to see the data at the same rate or pace you used to,” Davis said.
What’s to come?
Through the second quarter of this year, Aetna and Humana seem to be dealing with the biggest issues. Both insurers project that higher utilization will persist and have implemented cost-cutting initiatives. UnitedHealthcare, Elevance Health, Centene and Molina Healthcare appear to be better controlling Medicare Advantage costs, based on their financial reports and public statements.
UnitedHealth Group expects to grow at market rate next year and Elevance Health hopes to capture competitors’ members, while Humana, Aetna and Centene plan to pare back their benefit designs and footprints next year. Cigna is selling its Medicare business to Health Care Service Corp.
If elevated utilization proves to be widespread across the older population, the Centers for Medicare and Medicaid Services may boost Medicare Advantage rates for 2026 after setting a small cut for next year, since the agency generally bases payments on fee-for-service Medicare spending trends, Fiedler said.
“Medicare Advantage remains a key pillar of insurers’ ability to stay financially sound. Whether the margins that have been realized in past years continue, I think that's where the real question is,” Anderson said.
