Your Medicare Plan Might Not Include as Many Freebies Next Year
Medicare Advantage is facing a bit of a disadvantage.
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The private plans have grown in popularity in recent years because many seniors like that they come with no monthly premiums and offer extra benefits , including vision and dental coverage as well as fitness memberships. (It also doesn’t hurt that the plans are marketed aggressively ). Now, though, the industry is contending with pressure on both cost, as seniors who held back on procedures during the pandemic rush back, and revenue, as the Biden administration curtails payments to plans.
The more challenging financial picture means companies will need to make some tough decisions about their plans next year—either sacrifice profit margins to continue growing or pull back on benefits to boost profitability. While there are other factors at play, if the current trends continue, plans will have to be more cautious in their offerings going forward.
“At this point, it looks pretty clear that next year’s reduction in benefits is really going to reduce enrollment growth,” says David Windley, an analyst at Jefferies.
In their most recent earnings reports, health insurers sounded the alarm on higher medical costs, though there have been some notable differences. Humana, a Medicare pure play, warned that the higher cost trends could persist for some time. UnitedHealth Group, the industry leader, has signaled that the rise in costs is partly because of seasonal factors such as seniors seeking respiratory syncytial virus (RSV) vaccinations. How the next few months play out will determine what course insurers take as they bid for 2025 plans by June.
Humana is at the eye of the industry’s storm. Its stock is down nearly 20% this year after the company disclosed higher-than-expected medical costs . Not helping matters is the fact that the newly released 2025 rates proposal from the Centers for Medicare and Medicaid Services, or CMS, reflects what insurers say is an effective decline in payments . The rates offered by CMS to plans typically go up after lobbying from insurance giants around this time of the year, so the industry’s talk of cutting benefits should be seen as part of an effort to prod CMS to increase rates.
But pressure from Wall Street also plays a role. CVS, parent company of Aetna, acknowledged the margin pressures in its earnings call. Last year, CVS was aggressive in expanding benefits to attract new members, which helped it add 800,000 Medicare Advantage enrollees. Many of those new members switched from other plans.
During an earnings call, UnitedHealthcare Medicare & Retirement CEO Tim Noel said, “We probably saw one of the more aggressive years of pricing that we’ve ever seen.” He was no doubt referring to CVS.
But the higher-than-expected medical costs are eating into profits, prompting CVS to cut its 2024 earnings per share outlook while acknowledging that its Medicare business will only be marginally profitable in 2024.
“We are first and foremost focused on recovering margin, and market share gains is a secondary consideration,” said Brian Kane, president of Aetna, the CVS health-services arm. Elizabeth Anderson, an analyst at Evercore ISI, says that while some benefits might have to come down next year, CVS’s improved star ratings, which can bring bonus payments from CMS, will help its Medicare business become more profitable next year.
While there is a lot of posturing in the health insurance business, it is at least fair to say that there is a real cooling of what was once a gold rush. Cigna recently sold its Medicare business after calling off talks to purchase Humana (much to the relief of Cigna shareholders), and its stock is one of the few in the industry being rewarded. Others are pressing the pause button.
“We’re in the position of not trying to grow Medicare Advantage,” said Centene Chief Financial Officer Andrew Asher. “We’re trying to ultimately recover margin [in the] back half of the decade. And so we’ll just adjust the bids accordingly.”
Ultimately, Asher explained, that means plans might be a “little bit less attractive for seniors.” Those comments are intended just as much for investors’ ears as they are for bureaucrats at CMS. But the message is clear: Medicare Advantage plans might need to get a little skimpier next year.
Write to David Wainer at david.wainer@wsj.com
