Pressure Building On Medicare Advantage. Time To Act Is Now

History has a way of repeating itself. Medicare Advantage is entering a period that is eerily similar to one that resulted in a significant shift in the competitive landscape nearly 30 years ago. Regulatory and market pressures are bearing down on insurers, and they need to avoid missteps of the past to be in a position to succeed in the coming years.

In the current environment, lower than average rate increases, post pandemic spikes in utilization, and a tighter risk adjustment model have taken a bite out of the momentum that has driven historic growth in the program. The margin and operational pressures of these changes are already being felt in 2024 financials and will intensify in 2025. This raises the question: how should payers respond?

The changes coming to MA are not transitory; they are intentional adjustments in the direction of the program. The impact will likely be felt for a decade or longer as the remaining wave of 20 million-plus baby boomers age into Medicare between now and 2030. Similar to what the industry experienced in the late 1990s and early 2000s, we anticipate a bifurcation of the market with payers either successfully refocusing their businesses on MA fundamentals, or, for those maintaining the status quo, steadily declining financial performance, potentially leading to partial or full exits as we have already started to see.

Insurers aiming to successfully respond to pressure from Centers for Medicare and Medicaid Services’ policies must act now to ensure long-term viability. To that end, this article outlines the importance of introducing a more rigorous business-led bid planning process for 2026 that starts almost immediately.

What is driving the pressures we see now?

There is mounting concern over the cost of the Medicare Advantage program. It’s more than a question of solvency, which has long hovered on the horizon, but rather skepticism around the value for dollars spent — an estimated $462 billion in 2024. That sentiment is no doubt hard for the industry to hear considering all the good work that Medicare Advantage organizations — and the provider partners they rely on — have done to improve quality ratings year over year, introduce new health equity and social determinants programs, and help members get the care they needed during the pandemic. While these contributions should not go unrecognized, there is merit to the constructive criticism that the Medicare Payment Advisory Commission (MedPAC) and others have levied against the program for years.

The current arms race among insurers to expand supplemental benefits is one example where MedPAC and others are raising concerns. Relaxation of eligibility rules have enabled insurers to cover everything from gas cards and groceries to utility bills. While these benefits can move the needle on social determinants for a very targeted cohort and may have a positive impact on health outcomes, the broad deployment of these benefits as a tool to grow membership comes at a time of increased scrutiny over the funding of the MA program. So, it is understandable that lawmakers, regulators, and others want to rationalize payment levels to focus on the original intent and long-term sustainability of Medicare.

What will these changes do to the payer market?

Looking back at the late 1990s, Medicare+Choice — MA’s former name — faced similar scrutiny. Questions surrounding the program’s overall value during an era of massive budget deficits led lawmakers to advance a multitude of changes in the Balanced Budget Act (BBA) of 1997, including immediately capping reimbursement increases in most counties at 2% despite healthcare cost inflation ranging from 5% to 10%.

The BBA dramatically overhauled the landscape as many insurers were slow to respond to the regulatory changes and significantly reduced their participation in the program. Between 1998 and 2002, the number of Medicare+Choice contracts fell to 157, down from 346. The contract exits were not just small companies, but included the likes of Aetna, Cigna, and many Blue Cross Blue Shield plans. The number of Medicare+Choice enrollees shrank from 6.3 million to 4.7 million during the same period.

By contrast, companies like Oxford Health Plans in the Northeast, PacifiCare in the West, and Humana adjusted their approach by introducing new planning and rigorous financial discipline that allowed them to survive the pressured years with better financial outcomes than others. Oxford and PacifiCare were eventually acquired by UnitedHealthcare and the MA growth trajectories of both Humana and United over the past decade speak for themselves.

How can insurers weather the new storm?

MA has rebounded since the days of the BBA and really took off after the Medicare Modernization Act of 2006, which ushered in Part D drug benefits and risk adjustment. There are now roughly 720 Medicare Advantage contracts and more than 32 million enrollees, representing 54% of the Medicare eligible population. It’s expected that 60% of beneficiaries will be in a MA plan by the end of the decade. Even as enrollment grows, we expect the regulatory and market forces mentioned above will again force a split in the MA payer landscape and a reduction in the number of contracts. MA organizations vying for long-term stability need to transform their operations similarly to how Humana, PacifiCare, and Oxford did in the late 1990s or they will ultimately be forced to exit the same way that half the industry did.

The first step is to reset bid processes, shifting away from the growth-centric mindset and resetting their focus on core insurance concepts, including adverse selection and induced utilization. MA organizations need a more holistic business planning process that is steered by executives with profit and loss responsibility. Specifically, there are four things that must happen, and happen immediately:

1. Product planning must be replaced with business planning. The bid must move beyond copay and benefit design and directly address service areas, product types, provider partnership needs, utilization management strategies, administrative structures, and more. All of these go into the bids one way or another, and in many cases are required to be defined in the bid in order to make a change. For example, the list of services requiring an authorization is defined in the plan benefit package. Insurers aiming to change or add authorization requirements for 2026 need to include that language in the bids they submit in 2025. If they miss that window, they have to wait another year to make the change.

2. Research and data must drive decision-making. This is a different set of research and data than is driving processes today. It is not insights on consumer demand for new supplemental benefits or plan preferences, but rather insights that can drive decision-making around how to refine benefits to select the right insurance risk for a plan and inform benefit culling while minimizing member and provider abrasion. This will require quantitative external research and significantly rigorous analysis of the existing book of business that is beyond the capability and capacity of many MA teams today.

3. To enable that, planning must start sooner. Plans must mobilize their 2026 bid efforts this Fall, ideally no later than October. That enables MA organizations to respond to competitor plan and benefit changes, but also creates a longer window for the broader multi-functional planning, and research and analytics work that is required.

4. Evolved governance and strong accountability. The decisions that need to be made in this evolved business planning process require greater involvement from senior executives and finance. The option set and stakes of these decisions are broader and higher, and more senior executives need to be involved early and often in the process. Plans get one shot each year to reset their performance through product decisioning and the bid process, and that once-a-year window cannot be missed or wasted.

None of this will be an easy change for most organizations. It’s been more than 20 years since this level of discipline was required, and the need to prioritize margin over growth will be foreign – if not anxiety inducing – to most individuals and teams executing Medicare Advantage operations today. However, plans cannot afford to be paralyzed by indecision, nor to have their teams confused or directionless in figuring out what broader business planning might look like. Organizational structures, system functionality, and data availability and accuracy are likely to be impediments to this journey and only emphasize the importance of active leadership, vision, and clarity in navigating the years ahead.

The good news is that this has all been done before. And history has also taught us that the pendulum will eventually swing back the other direction and there will be reward for payers that can not only weather the storm but navigate a new course.