- Medicare Advantage is still growing, but the popular — and lucrative — privately run insurance offering could be becoming less profitable for payers, according to a report by Moody’s Investors Service.
- Insurers’ earnings from MA were 2% lower in 2022 than in 2019, despite membership gains and premium growth, the credit rating agency found.
- Insurers’ MA segments will likely continue to be pressured this year, as seniors utilize more medical care and reimbursement rates tick down for the first time in years, Moody’s said.
In MA, the federal government pays insurers to manage care for seniors. The program has become increasingly popular over the past 15 years due in part to seniors being attracted by the supplemental benefits plans can provide, and MA plans now enroll more than half the eligible Medicare population.
The program is valuable for insurers, too. Annual earnings per member reached $526 in 2022, about double the earnings in Medicaid and 45% higher than in risk-based commercial plans, according to the Moody’s report.
However, MA’s profitability may be shrinking, especially for payers with a smaller MA presence. Between 2019 and 2022, the profit margin in MA declined from 4.9% to 3.4%, while earnings per member declined 28%.
Increased utilization among seniors, which some insurers began flagging early last year, is one challenge.
UnitedHealth, the largest MA insurer in the country, posted its highest medical loss ratio — a metric of how much insurers pay to cover their members’ medical costs — since the beginning of the COVID-19 pandemic began in the fourth quarter last year. Much of the increased costs were driven by more seniors using outpatient care, CEO Andrew Witty said on a call with investors earlier this month.
Humana, another major MA payer, lowered its 2023 profit outlook and its expectations for growth in the program as heightened medical costs hit its bottom line. The insurer expects $16 in adjusted earnings per share in 2024, far short of Wall Street’s expectations.
Several factors could be boosting utilization among seniors, including members accessing care they had put on hold during the pandemic or scheduling delays due to staffing shortages among providers, Moody’s said.
The MA sector faces other potential problems, including funding pressure from a looming insolvency date for the Medicare hospital fund in 2031. The CMS has also changed its risk adjustment model used to calculate payments to MA plans, which will phase in over three years and potentially continue to squeeze payers.
Still, MA remains popular with seniors, and there’s still room for some growth in the next few years, according to the Moody’s report. But it will likely be challenging for insurers other than industry leaders — UnitedHealth, Humana and CVS Health-owned Aetna — to achieve profitability.
“We attribute this to the importance of scale to cover things such as customer acquisition costs, achieve appropriate pricing and maintain a stable benefits package. Another important factor is the penetration of value-based care, which helps better control costs and produce better outcomes,” the report’s authors wrote. “We estimate that the big three accounted for virtually all the earnings reported above in 2022.”