Radar on Medicare Advantage

As the first round of fourth-quarter and full-year 2023 financial results were reported by publicly traded insurers in January, modest enrollment growth during the recently concluded Annual Election Period (AEP) and continued utilization pressures were prominent Medicare Advantage themes during earnings calls. Although analysts were particularly concerned with results posted by Humana Inc., which notably moved up its earnings release date, some maintained that the MA-focused insurer remains poised for long-term growth in the sector. 

Humana Inc. on Jan. 25 introduced 2024 adjusted earnings per share (EPS) guidance of “approximately $16” — compared with the Wall Street consensus of $29.14. But that was after a regulatory filing indicated that inpatient utilization was higher than expected in the fourth quarter of 2023, primarily during November and December, “as well as a further increase in non-inpatient trends, predominantly in the categories of physician, outpatient surgeries, and supplemental benefits.” Humana’s stock plummeted after the disclosure, and the impact reverberated throughout the managed care sector, denting the share values of competitors including CVS Health Corp. and Elevance Health, Inc.

While publicly traded insurers’ fourth-quarter and full-year 2023 earnings reported thus far have highlighted concerning trends in Medicare Advantage, a new report from Moody’s Investors Services suggests that the MA market even prior to the current climate is showing “signs of weakening.” Nevertheless, with margins far greater than in other sectors, MA can still be profitable when properly managed and will stay competitive, suggests an analyst with the credit ratings firm.

Among the 10 insurers rated by Moody’s — which account for approximately two-thirds of all MA members — aggregate earnings stemming from MA decreased by 2% from $10.8 billion in 2019 to $10.6 billion in 2022, the most recent year available. During that same period, the aggregate MA earnings margin fell from 4.9% to 3.4% and earnings per member dropped by 28% ($732 to $526). While those earnings remain higher compared to other segments, earnings per member in the Medicaid and commercial segments increased, offsetting the decline in MA for an overall increase of 2.7% to $216 per member, according to the Jan. 23 Moody’s report.

For our annual series of outlook stories on the year ahead in Medicare Advantage, AIS Health, a division of MMIT, asked multiple experts what they view as MA organizations’ “keys to success” in 2024 and what critical investments will help them unlock their goals. Responses ranged from using artificial intelligence and other digital tools to improve the member experience to strategically striking value-based agreements with providers. 

“If health plans don’t do a good job of educating or empowering the members with information, then the member effort increases, which frequently leads to member churn,” observes Srikanth Lakshminarayanan, senior vice president of the Center of Excellence for Healthcare Engagement Services at Sagility, a tech-enabled business process firm that supports payers and providers. “With MA membership increasing literally day by day, it’s important for health plans to make a conscious effort at doing a good job on member onboarding and retention. People who come out of their commercial plan into a Medicare plan need handholding of a different kind. They often need to know how Medicare works, what’s the supplemental spend, etc.”

Since integrating physical and behavioral health into its managed Medicaid program beginning in 2016, the state of Washington has not seen significant changes in utilization, quality measures or health outcomes, according to a recent JAMA Health Forum study. Experts tell AIS Health, a division of MMIT, the study illustrates the challenges associated with integrating behavioral and physical health that may not be fully apparent until the process begins.

K. John McConnell, Ph.D., the study’s lead author, tells AIS Health that Washington is just one of many states that in recent years have moved away from so-called carve-out models in Medicaid, where one health plan handles physical health and a separate behavioral health organization manages behavioral health. Most states now have carve-in designs where states contract with managed care organizations (MCOs) that are responsible for payment for all health care services for their members.

Tensions were unusually high at a Jan. 12 meeting of the Medicare Payment Advisory Commission (MedPAC), which is preparing its annual March report to Congress on the state of Medicare Advantage, among other things. While the routine discussion of the commission’s January status report hit several familiar notes — MA is becoming increasingly popular in an industry plagued by consolidation, excessive coding is driving up program costs, and quality bonus payments don’t reflect high quality care — one commissioner called out the group’s perceived lack of neutrality as the industry prepares for CMS’s 2025 Advance Notice.  

MedPAC projects that in 2024, the government will pay $88 billion more than it would pay if MA members were instead beneficiaries of fee-for-service (FFS) Medicare, continuing a trend that has proliferated in recent years. These overpayments, MedPAC analysts outlined for the commission, are driven by MA plans’ enrollment of a largely healthy risk pool, which is then subject to “coding intensity” (i.e., the higher coding patterns due to financial incentives that don’t exist in FFS Medicare).