Radar on Medicare Advantage

Despite a solid year of elevated medical cost trends that resulted in financial losses, recent guidance and commentary from two leading Medicare Advantage insurers sparked cautious optimism from the investment community. Reporting preliminary results from the 2025 Annual Election Period (AEP) that were largely in line with expectations, both CVS Health Corp. and Humana Inc. indicated that softening their competitive positioning in exchange for manageable growth will aid in margin recovery.

For the quarter ending Dec. 31, 2024, CVS Health reported adjusted earnings per share (EPS) of $1.91, which represented a year-over-year decline of 44% but came in well above Wall Street’s projections of 91 cents. The Health Care Benefits segment, which houses Aetna’s insurance business lines, reported a medical loss ratio (MLR) that was slightly better than expected at 94.8% for the quarter and 92.5% for the full year. That was higher (worse) than the 2023 MLR of 86.2%, when elevated medical cost trends had not yet fully materialized.

The return of Donald Trump to the White House has reenergized proponents of Medicaid work requirements, a controversial but popular policy during Trump’s first term. While a handful of states have already signaled that they want to resurrect their work requirements programs, which typically apply to the Medicaid expansion population, a new bill introduced in the House of Representatives, known as the Jobs and Opportunities for Medicaid Act, calls for a federal Medicaid work requirement. Sponsored by Rep. Dan Crenshaw (R-Texas) and supported by Sens. John Kennedy (R-La.) and Eric Schmitt (R-Mo.), the bill would require “able-bodied” adults without dependents who receive Medicaid benefits to work or volunteer for at least 20 hours per week.

Shortly after the Senate confirmed Robert F. Kennedy Jr. as HHS secretary, President Donald Trump issued an executive order (EO) calling for the creation of a Make America Healthy Again Commission focused on disease prevention. Citing the rising rates of mental health disorders, obesity, diabetes, and other chronic diseases, the Feb. 13 EO noted that the U.S. must “re-direct our national focus, in the public and private sectors, toward understanding and drastically lowering chronic disease rates and ending childhood chronic disease.” It called on the National Institutes of Health and other government-funded research to “prioritize gold-standard research on the root causes of why Americans are getting sick.” Moreover, it directed agencies to “ensure the availability of expanded treatment options and the flexibility for health insurance coverage to provide benefits that support beneficial lifestyle changes and disease prevention.” Kennedy will chair the new commission, which will include members from a host of other agencies not including CMS. In fact, the order made no mention of Medicare or Medicaid. While Kennedy made “numerous promises to senators around vaccines,” Raymond James analysts said they expect the new secretary to have “little impact on CMS or payment policies as…he showed a significant lack of understanding” of those programs during his confirmation hearings. At his first public appearance as HHS secretary on Feb. 18, Kennedy said he intends to review the childhood vaccination schedule, according to the Associated Press. “The views of appointed staff (not announced by President Trump) likely will shape much of the real policy for the department including in areas like Medicare Advantage, provider reimbursement, among others,” wrote Raymond James’ Chris Meekins on Feb. 17. In a statement issued Feb. 13, Better Medicare Alliance urged Kennedy to protect MA with “adequate funding and a stable regulatory approach.”

In the first few weeks of Donald Trump’s second presidency, Medicare Advantage plans faced a tremendous amount of uncertainty as the White House threatened to pause federal financial assistance activities, issued multiple executive orders outlining the new administration’s priorities, and targeted diversity, equity and inclusion (DEI) initiatives across departments. HHS also issued a freeze on communications that temporarily halted plan activities related to CMS audits, and Trump's new Department of Government Efficiency has accessed CMS systems in search of potential fraud.

After the Wall Street Journal reported that DOGE — the Elon Musk-led agency that has not been authorized by Congress — gained access to "key payment and contracting systems" for Medicare and Medicaid, CMS on Feb. 5 issued a statement confirming that the agency is collaborating with DOGE. 

In an interesting turn of events that may signal tougher-than-expected oversight of Medicare Advantage, the Dept. of Justice (DOJ) under President Donald Trump has filed a motion supporting the previous administration’s attempt to regulate Medicare Advantage payments to agents and brokers. In its response, the DOJ asserts that CMS by law has broad authority to regulate how Medicare plans are sold and how much marketers get paid for that.

“People who think the Trump administration will have a lighter hand on MA marketing will need to look elsewhere for concrete evidence,” remarks Tricia Beckmann, principal with Faegre Drinker Consulting, of the recent filing. But it is also not “terribly surprising to see the federal agency assert broad authority over marketing particularly given its responsibilities under MIPPA,” she says, referring to consumer-friendly terms of the Medicare Improvements for Patients and Providers Act.