How Biden transformed Medicare Advantage

The clock is running out on one of the most consequential eras for Medicare Advantage since its inception nearly three decades ago.

President Joe Biden’s single term in office has featured some of the most high-velocity policymaking on Medicare Advantage — both in quantity and potency — since George W. Bush's presidency. The Biden administration has overseen dozens of changes to the financing and the rules governing the private sector alternative to fee-for-service Medicare.

Related: 2025 Medicare Advantage market takes shape amid turmoil

“Across all of the programs in Medicare, we’ve had a common vision around advancing health equity, expanding access to coverage in care, driving innovation for whole-person care, and promoting affordability and sustainability of the Medicare program,” Dr. Meena Seshamani, director of the Center for Medicare, said in an interview.

“You’ll see those themes across what we've been talking about with Medicare Advantage, within the tremendous changes that we have been making to traditional Medicare, which is the chassis of much of the healthcare system,” Seshamani said. The Medicare annual enrollment period began Tuesday and runs until Dec. 7.

Medicare Advantage growth skyrocketed in the last decade and more than half of Medicare beneficiaries are now enrolled in private plans, a trend that should excite health insurance companies as more and more seniors choose their products.

But that evolution corresponded with heightened scrutiny of spending and insurance industry business practices under Biden.

“The administration has stood its ground, and I think that’s reflective of the posture out of the Biden-Harris administration, that they were not going to fold when it came to going toe-to-toe with corporations,” said Andrea Ducas, vice president of health policy at the liberal Center for American Progress.

Participation in Medicare Advantage is still profitable. The program hurtled past 50% of Medicare enrollees last year, and demand is on the rise as the older population continues to grow. The Centers for Medicare and Medicaid Services is expected to spend up to $600 billion on Medicare Advantage in 2025.

But In practice, CMS’ vigilance has begun squeezing insurance company profits. Taxpayer dollars aren’t flowing quite so freely, and that’s shaken the industry.

Medicare Advantage giants including UnitedHealth Group subsidiary UnitedHealthcare, Humana and CVS Health subsidiary Aetna have pared down benefits and pulled back from geographic markets as their margins have failed to satisfy investors over the last several quarters.

“When you take the changes in totality, they put a lot of strain on health plans and fail to recognize some of the underlying cost of care, utilization increases and differentiation amongst payers that are putting all payers ultimately in a pretty challenging situation,” said Rebecca D’Amico, vice president of strategy for the Blue Cross Blue Shield Association.

40 years of controversy

For the government, operating Medicare Advantage is a balancing act.

CMS is obliged to steward taxpayer dollars and ensure that Medicare capably serves its more than 60 million beneficiaries and the providers that treat them. At the same time, the agency must take care not to drive away health insurance companies that administer the program's popular private sector offshoot.

In other words, CMS is a regulator and an enforcer while also a policymaker and an innovator. The agency toes a precarious line between managing Medicare Advantage aggressively, but not so aggressively that it triggers decisions from Medicare Advantage insurers that impact beneficiaries, such as exiting markets or weakening benefits, for instance.

This tension has been present since the earliest days of private health plans in Medicare. Beginning during Republican President Ronald Reagan's second term in 1985, a slow trickle of insurers and beneficiaries tried out a new public-private experiment dubbed Medicare Part C, but it cost more than traditional Medicare and had little impact on the program.

That changed with the Balanced Budget Act of 1997, which Biden supported as a senator from Delaware. That law, enacted by a majority-Republican Congress and Democratic President Bill Clinton, established Medicare+Choice, reduced rates and strengthened the risk-adjustment system to better spread medical expenses across Medicare+Choice insurers.

The payment reduction impacted insurers’ margins enough that they cut back benefits, increased premiums and pulled out of poorly performing markets, leading to the disenrollment of about 2 million people and a frenzy from policymakers to staunch the hemorrhaging.

The government’s solution? Pay more.

The Republican-controlled Congress passed two bills containing funding increases in 1999 under Clinton and in 2002 under President George W. Bush, a Republican. In 2003, Bush and the GOP-led legislature enacted the Medicare Modernization Act, which introduced the name "Medicare Advantage," boosted its funding by nearly 11% and created the insurer-administered Medicare Part D prescription drug program.

Biden voted against that bill in the Senate and most Democrats opposed further privatizing Medicare, pressing the point that Medicare Advantage costs more than traditional Medicare, contrary to the program's promise.

The 2008 election of President Barack Obama and the Democratic takeover of Congress prompted immediate — though initially unsuccessful — efforts to reduce Medicare Advantage spending. But Democrats managed to constrain Medicare Advantage in the Affordable Care Act of 2010, which included $136 billion in cuts over a decade.

Despite that cutback, Medicare Advantage remains more expensive than traditional Medicare. In March, the Medicare Payment Advisory Commission projected that Medicare spending this year will be $83 billion higher than if all Medicare enrollees were in the fee-for-service program.

Yet the politics have shifted since the Medicare+Choice days. As Medicare Advantage insurers attracted a greater share of enrollees with zero-premium plans and policies featuring benefits not included in traditional Medicare, Democrats grew more cautious about disrupting the program and opening themselves up to accusations of cutting Medicare.

That didn't stop the Biden administration from taking a step-by-step approach to tackling what it saw as the biggest issues facing Medicare Advantage, its enrollees and providers.

Biden's Medicare Advantage record

Entering the White House, Biden made it clear there were changes brewing. Out of the gate, CMS set new strategic pillars for the entire agency that centered fiscal stewardship of Medicare and health equity — all while saying they would not cut Medicare or Medicare benefits.

“The landscape shows that we have stable premiums, stable benefits, we have robust options for people to enroll in Medicare Advantage, if that is what they choose to do,” Seshamani said. “The most important thing is making sure that the Medicare program is really serving the people that rely on it, and really addressing issues of access to care and health equity.”

Concerns of rising overpayments to plans prompted several new regulations, including some landmark carryovers from prior administrations, a reflection of the softened partisan divide over Medicare Advantage.

For instance, CMS finalized a rule last year that eliminated a 2012 payment adjustment, called the “fee-for-service adjuster,” which was initially implemented to reduce underpayments to Medicare Advantage plans relative to fee-for-service.

The regulation, which consummated proposals from Republican President Donald Trump's administration, also set plans in motion to extrapolate audits of plans’ coding and payments beginning in 2018 — though that’s a watered-down version of the original proposals, which sought to look back as far as 2011 — and claw back overpayments.

CMS responded to concerns about arbitrary denials and misleading marketing by cracking down on transparency of Medicare Advantage plan networks, prior authorizations and marketing tactics.

The agency sought to rejigger financial incentives and limit gaming of the system by introducing a new risk-adjustment model and tweaking the Star Ratings program to make it more challenging to qualify for lucrative bonus payments.

CMS beefed up standards for supplemental benefits, introduced a slew of health equity requirements and demanded an abundance of information from insurers to guide policymaking.

“I feel like it's conservative to say that we're seeing some of the most significant and sweeping regulatory changes to this program that we've seen in 20-plus years,” the Blue Cross Blue Shield Association's D’Amico said.

Anxious insurers

The health insurance industry does not see that as a good thing. The rate cut for 2025, for instance, coincided with higher-than-expected medical costs for Medicare Advantage carriers and tighter standards for star ratings.

“I think the really unfortunate thing about some of the changes that we're seeing is that the scrutiny and the changes are really peanut-buttered, and it lumps in scrutiny for the good actors with the bad. It's sort of like punishment for the industry writ large,” D’Amico said.

In the aggregate, the Biden policies have impacted insurers’ finances, albeit incrementally, said Dr. Mark McClellan, director of the Duke University Margolis Institute for Health Policy and CMS administrator during President George W. Bush's second term.

“Nobody changes this program too dramatically, too quickly. It's too important for seniors all over the country now, especially since half of them are in the MA program,” said McClellan, who sits on the boards of Cigna and Alignment Healthcare. “But I do think these changes are making a difference.”

The deleterious effects of regulatory changes on the markets are clear. For instance, stock prices dropped for several major Medicare Advantage insurers the day after CMS released its rate notice on April 1.

Humana shares sank 14%, the largest decline that day among insurers, and it took nearly a month for them to rebound. UnitedHealth Group’s stock fell almost 8% and Centene’s stock went down more than 6%. Humana and UnitedHealth Group suffered in the markets again this month amid more negative reports on their Medicare Advantage finances.

Large insurers are still reporting profit margins for Medicare Advantage, albeit smaller than in recent years. And the big companies are making money overall. UnitedHealth Group earnings increased 3.7% to $6.1 billion in the third quarter, the company reported Tuesday, for instance.

But unfavorable regulation and oversight during the Biden years forced those companies to make cutbacks.

“The change in benefits is directly correlated to the changes in the regulatory environment,” Humana President and CEO Jim Rechtin said last month. “You are going to see a lot of those changes reflected in profits this year. I think that’s just the practical reality, you're going to see a pullback on benefits pretty much across the industry.”

One common strategy to revive Medicare Advantage margins was fleeing less profitable geographic markets for 2025. That will force more than 7% of Medicare Advantage members to choose new plans, according to an analysis by the healthcare consulting company ATI Advisory.

Those fluctuations create uncertainty for enrollees and financial uncertainty for smaller insurers, said Ceci Connolly, president and CEO of the Alliance of Community Health Plans, which represents provider-affiliated insurers such as Oakland, California-based Kaiser Permanente, Danville, Pennsylvania-based Geisinger Health Plan and the University of Pittsburgh Medical Center Health Plan.

“UnitedHealthcare is not the same as a nonprofit community health plan that functions in one market, cannot leave that market, does not answer to shareholders, is not tracking its stock price and its profit margin,” Connolly said. “It would be foolish to think that you should develop policies that apply exactly the same to those two very different entities, very different missions, very different business models and very different outcomes.”

'Kill the golden goose'

Regulators current and former aren’t convinced there's cause for concern.

"The landscape shows that everything is stable, and that people have access to benefits that are important to them,” Seshamani said.

Tom Scully, who was CMS administrator during George W. Bush's first term and played a key role in drafting the Medicare Modernization Act, put it more bluntly: “Anyone telling you the Biden administration's ruining MA, that's just complete garbage.”

CMS’ mission to ensure the health of the overall program is driving the administration's strategy, said Scully, a general partner at the private equity firm Welsh, Carson, Anderson & Stowe, which has invested in healthcare companies such as Ft. Lauderdale, Florida-based U.S. Anesthesia Partners, Mechanicsburg, Pennsylvania-based Select Medical and New York-based MultiPlan.

Ensuring incentives are accurate and promoting the right industry behavior is key to Medicare Advantage’s longevity, said Scully, who also is a lobbyist for Federal Health Policy Strategies and has represented clients such as Scan Health Plan, Birmingham, Alabama-based Encompass Health and UPMC.

“You don't want the margins to get too big and you don’t want the plans to do too well, because you’re going to kill the golden goose. It's a wonderful program. It's done a lot of great things for people. And you want plans to make a reasonable margin, but you just need to keep tapping on the brakes here and there to make things right,” Scully said.

Although Medicare Advantage is a key focal point for the Biden administration, CMS completed its regulatory agenda for Medicare Advantage incrementally, rather than putting forward a comprehensive, high-profile agenda for the program like it did for sectors such as nursing homes.

“Every market is a little bit different, and I think what you're seeing is that there's never a one-size-fits-all to policymaking,” Seshamani said. “It is very important that we take stock of what is on the ground and move accordingly from there.”

CMS’ stepwise approach gave the market time to adjust to each change as it appeared, and the iterative, weedy updates that accumulated over time gave CMS the flexibility to make changes that weren’t as easily challenged by the industry.

That was likely strategic, said Ducas from the Center for American Progress.

“Even though the steps that have been taken around trying to bring the overpayment rates down have been pretty incremental, I think it's meaningful that we've seen a little bit of a decrease in the face of tremendous industry opposition over minimal cuts, minimal changes,” Ducas said.

Industry pressure will continue to shape of future regulatory policies under the next president, whether it's Trump or Vice President Kamala Harris, the Democratic nominee, although neither candidate has addressed Medicare Advantage during the campaign.

Health insurance companies spend millions of dollars a year on lobbying Congress and federal agencies. UnitedHealth Group alone has spent almost $4 million so far this year on lobbying, according to the Senate lobbying disclosure database.

“There are some really intense special interests in the MA world now,” Ducas said. “They’re making a lot of money. You've got a lot of carriers that are making a lot of money and are very much incentivized to push back on the tiniest changes.”

And enrollees are increasingly shaping Medicare Advantage policy, albeit more indirectly, through their representatives on Capitol Hill.

“Medicare Advantage is highly, highly, highly sensitive politically, because you’ve got millions of seniors who are highly sensitive to every nickel that you change and what they're getting and not getting in a benefit,” Scully said. “As soon as you make a change somebody doesn't like, you're going to get a thousand calls from 20 senators, 10 from each party.”