Category Archives: Health Insurance Industry

Medicare Advantage’s $64 Billion Supplemental Benefits Slush Fund

Posted on by • Posted in Health Insurance Industry, Marketing Deceptive, Medicare Advantage, Medicare Advantage Denials, Medicare Advantage Overpayments, Medicare Advantage Supplemental Benefits, Medicare Payment Advisory Commission (MedPAC) • Leave a comment
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Medicare spends huge sums financing the dental, vision and other benefits offered by Medicare Advantage plans. A new government report sounds the alert about their potential misuse.

In mid-March, the Medicare Payments Advisory Commission (MedPAC), which advises Congress on Medicare policy, made a bombshell disclosure in its annual Medicare report. The rebates that Medicare offers Medicare Advantage plans for supplemental benefits like vision, dental, and gym membership were at “nearly record levels”, more than doubling from 2018 to nearly $64 billion in 2024, but the government “does not have reliable information about enrollees’ actual use of these benefits at this time.”

In other words: $64 billion is being spent to subsidize private Medicare Advantage plans to provide benefits that are not available to enrollees in traditional Medicare, and the government has no idea how they are being spent.

Not only is this an enormous potential misallocation of taxpayer resources from the Medicare trust fund, it is also a critical part of Medicare Advantage’s marketing scam. The additional benefits offered in Medicare Advantage plans are what entice people to give up traditional Medicare, where there is no prior authorization, closed networks, or care denials.

But, as MedPAC states in the report, even though the Centers for Medicare and Medicaid Services (CMS) does not collect the data on utilization of supplemental benefits, what little data there is does not paint a pretty picture, with MedPAC noting that, “Limited data suggest that use of non-Medicare-covered supplemental benefits is low.”

HEALTH CARE un-covered is among the first media outlet to report MedPAC’s findings.

A 2018 study by Milliman, an actuarial firm, found that just 11 percent of Medicare Advantage beneficiaries had claims for dental care in that year, and that “multiple studies using survey data have found that beneficiaries with dental coverage in MA are not more likely to receive dental services than other Medicare beneficiaries.” A study from the Consumer Healthcare Products Association found that just one-third of eligible participants in Medicare Advantage plans used an over-the-counter medication benefit at pharmacies, leaving $5 billion annually on the table for insurers to pocket. Elevance Health, formerly Anthem, has 42 supplemental benefits available to Medicare Advantage beneficiaries. They analyzed a subset of 860,000 beneficiaries. For six of the 42 benefits, the $124 billion insurer could not report utilization data. For the other 36 supplemental benefits, the bulk of those covered used fewer than four benefits, with a full quarter not using any benefits at all and a majority using one or less benefits.

Medpac added that it had “previously reported that while these benefits often include coverage for vision, hearing, or dental services, the non-Medicare supplemental benefits are not necessarily tailored toward populations that have the greatest social or medical needs. The lack of information about enrollees’ use of supplemental benefits makes it difficult to determine whether the benefits improve beneficiaries’ health.”

With studies already showing that Medicare Advantage is associated with increased racial disparities in seniors’ health care, the massive subsidies provided to supplemental benefits appears to be an inadvertent driver of this problem:

the $64 billion—at least the portion of it that is actually being spent as opposed to deposited into insurer coffers—is likely not going to the populations that actually need it.

Amber Christ is the managing director of health policy for Justice in Aging, which advocates for the rights of seniors. “Health plans are receiving a large amount of dollars to provide supplemental benefits through rebates to plans. Clearly the offering have expanded, but the extent that they are being used is a black box,” she said. What little we do know, she said, indicates a “real lack of utilization.”

Christ pointed out that the Biden administration has taken some significant steps forward. “We’ve seen some good things coming out of CMS that will bring some transparency—the plans are going to have to report spending and utilization data, and in 2026 they will have to start sending notices to enrollees at the six-month point, letting people know what benefits they have used and what’s available. Those are all good moves.”

What’s missing from the proposed rule-making, however, is how the colossal outlays to supplemental benefits impact the goal of health equity, Christ said. “What we would have wanted to see more is demographics around utilization. Are there disparities in access?”

Of particular concern to advocates is the way that Medicare Advantage plans use supplemental benefits to market to “dual eligibles,” people who are eligible for Medicaid and Medicare. Medicare Advantage plans have taken to offering what amounts to cash benefits to dual eligibles, which provides a very strong incentive for people to sign up for Medicare Advantage.

But it’s effectively a trap, as being in both Medicare Advantage and Medicaid can not only result in prior authorization, care denials, and losing access to one’s physician, but also making care endlessly complex.

“Medicaid offers a bunch of supplemental benefits, either fully or often more comprehensively than Medicare Advantage. Seniors get lured into these health plans for benefits that they already have access to. But because benefits between Medicare Advantage and Medicaid aren’t coordinated people experience disruptions to their access to care. If they are dually enrolled it should go above and beyond, not duplicate coverage or making it more difficult to access coverage,” Christ said. 

David Lipschutz, the associate director of the Center for Medicare Advocacy, related an experience he had with a state health official who counseled a senior against enrolling in Medicare Advantage. The official “was able to stop them and help them think through their choices. She wanted to enroll in a Medicare Advantage plan that offered a flex benefit,” which is basically restricted cash (Aetna, for example, restricts its recipients to spending the money at stores owned by CVS Health, its parent company). “None of her five doctors contracted with the Medicare Advantage plan. Had it not been with that interaction with the health counselor. She would have traded the flex card for no access to her current physicians. It’s an untenable situation.”

Lipschutz added that Medicare Advantage insurers contract with community organizations to administer supplemental benefits, which helps to insulate the industry from political pressure from advocates in Washington. “This whole new range of supplemental benefits has also at the same time pulled in a lot of community based organizations. They need the cash that the plans are offering. It creates a welcome dynamic for insurance companies trying to make community organizations dependent on their money. But it’s not a good situation to be in when you’re trying to reign in Medicare Advantage overpayments.”

Bid/Ask

The core of the financing of supplemental benefits is through a bid system, in which CMS sets a benchmark based on area fee-for-service Medicare spending, and then invites insurers to submit a bid, and then receives a rebate for supplemental benefits based on the benchmark. The essential problem is that the average person in traditional Medicare is sicker than someone in a Medicare Advantage plan—the research shows that when patients get sick, they leave Medicare Advantage for traditional Medicare if they can. And Medicare Advantage plans aggressively market to healthier patients—the oft-touted gym membership supplemental benefit only works for those who actually work out at the gym regularly. (Well under one-third of those 75 and over.)

And in counties with low traditional Medicare spending, the benchmark is at 115 or 107.5 percent—an unreasonable and massive subsidy written into the Affordable Care Act at the behest of the insurance lobby. The lowest benchmark is at 95 percent of FFS spending for areas with high costs.

“The way the payment is set up leads to this excessive amount of rebate dollars,” said Lipschutz. “It’s a fundamentally flawed payment system which is in dire need of reform.” Lipschutz’s position jives with the MedPAC report, which states that: “A major overhaul of MA policies is urgently needed.”

Supplements For Half

“You shouldn’t have to enroll in a private plan just to access these benefits,” said Lipschutz. But that’s exactly the choice millions of seniors are faced with. Forty-nine percent of seniors remain in traditional Medicare.

And for that group, Medicare offers no supplemental benefits, Christ said. “As a foundational principle spending all this money for Medicare Advantage to give supplemental benefits doesn’t make sense. This is the Medicare trust fund. Half of Medicare has “access,” and the other half, in traditional Medicare, doesn’t. Wouldn’t those dollars be better spent giving everyone access? Especially when we understand that Medicare Advantage has narrower providers and prior authorization.

There’s a recognition that these supplemental benefits have positive impacts on quality of life, but we’re not offering it in traditional Medicare—even though Medicare Advantage is not doing a better job than traditional Medicare.”

House of Cards?

A new lawsuit, filed in April, could substantially impact the incentives that plans have to offer supplemental benefits. To manage costs, many Medicare Advantage plans have value-based care arrangements with providers—meaning that they share some of their revenues with hospitals and other health providers to ensure access to networks and to smooth costs out in the long run.

But as part of this arrangement, providers bear some of the costs of the plans—including the cost of supplemental benefits. Bridges Health Partners, which is a clinically integrated network of doctors and hospitals, sued Aetna to block the allocation of supplemental benefits to the expenses that they bear the cost of, due to a 20-fold increase in their costs.

Combined with the 2026 requirement from CMS that participants be informed as to what benefits they haven’t used, insurers’ ability to offer these supplemental benefits and still retain sky-high profit margins could be curtailed.

Here are the Five Areas the New DOJ Task Force on Monopolies in Health Care Should Focus On

Posted on by • Posted in Antitrust, Competition, Denial, Denial Rates, Dept of Justice (DOJ), Health Insurance Denial, Health Insurance Industry, High Deductible Health Plans, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly, Monopoly Behavior, Out of Pocket Expenses, Out-of-Network, Pharmacy Benefits Management, Prior Authorization, Surprise Bills, Underinsured, Vertical Consolidation, Vertical Integration, Vertical Merger, Vertical Mergers • Leave a comment
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Abuses by payers are myriad, but these five areas could bear the most fruit for federal antitrust investigators.

Earlier this month, the U.S. Department of Justice announced it has haunched an investigation into “issues regarding payer-provider consolidation” along with other problems associated with mergers and acquisitions in health care. This is significant. For years Washington has trained its oversight authority on pharmaceutical manufacturers, private equity investments in health care and, more recently, pharmacy benefits managers controlled by big insurers. This has held bad actors like Martin Skhreli and Steward Healthcare accountable. But, it has also let insurers grow ever larger, under the radar. 

No longer. 

This task force will specifically evaluate the following, as an example: “A health insurance company buys several medical practices that compete with each other. It also prohibits its medical practices from contracting with rival health insurance companies.” The government will also dig into “anticompetitive uses of health care data,” “preventing transparency,” “price fixing,” and other areas that could drag nefarious activities of insurers into the spotlight. 

I applaud the Department of Justice’s continued focus on these issues, building on the Department’s action announced in February to begin an antitrust investigation into UnitedHealth Group. (If you haven’t read the piece we published in February on UnitedHealth’s self-dealing that helped lead DOJ to open that antitrust inquiry, you can do so here.) The following are a few areas of low-hanging fruit that I hope the task force will focus on as they consider the impact insurers’ ongoing vertical integration has had on the overall health care system.

1. Insurers purchasing physician practices

Once a low-profile issue, Congress and the Biden administration alike have increasingly turned their focus to insurance companies – often referred to as payers – that now own and operate physician practices and clinics – those being paid. Even for someone without a law degree, it is easy to see the conflict this creates, particularly at scale. 

There is the oft-cited statistic that UnitedHealth has said that through its Optum division, the company employs or otherwise controls about 10 percent of doctors in the U.S. – around 130,000 physicians and other practitioners in 16 states. This prompted me to take a closer look at publicly available information on the number of doctors employed by other insurers to get a better handle on how much control of physician practices payers now have. 

It is difficult to put a percentage on physicians employed by each insurer, but it is clear that the others are following UnitedHealth’s lead. CVS/Aetna purchased Signify Health in 2023, adding 10,000 clinicians to its portfolio. The company says it supports “more than 40,000 physicians, pharmacists, nurses and nurse practitioners.” 

Clearly taking a page out of UnitedHealth’s playbook, Elevance (formerly Anthem), which owns Blue Cross Blue Shield plans in 14 states announced last month a “strategic partnership” with 900 providers across several states. Elevance did not disclose the terms of the deal except to say it, “will primarily be through a combination of cash and our equity interest in certain care delivery and enablement assets of Carelon Health.” 

As insurers have acquired physician practices, they also have created a rinse-and-repeat strategy associated with kicking physicians they don’t own out of network, and in some cases targeting those same practices for acquisition. Aetna and Humana recently told investors they will be reviewing their networks of physicians, signaling they’ll soon be further narrowing their networks. A good question for this task force: when insurers review those contracts with doctors, do they ever kick the doctors they employ out of network? (Doubtful.) This could specifically draw attention from the task force’s focus on “health care contract language and other practices that restrict competition,” such as contract provisions that require or encourage patients to seek care from doctors directly employed or closely controlled by patients’ insurers.

Additionally, UnitedHealth CEO Andrew Witty recently told analysts, “As I think you see some of the funding changes play out across the — across the next few years, I suspect that may also create new opportunities for us as different companies assess their positions.” My translation: UnitedHealth’s burdensome business practices and the way it shortchanges doctors (those “funding changes” he referenced) contribute to the financial distress that is forcing many health care providers to “assess their positions.”

As the task force continues to consider the impact of private equity in health care monopolies, transactions like this one should receive equal consideration for their lack of transparency and overall impact on market consolidation.

2. Co-mingling of middlemen

I have watched with interest for over the past year as both Democrats and Republicans in Washington increasingly trained their fire on pharmacy benefit managers. The natural next area of focus in that space, which this new task force could advance, should be around how the

three PBMs that control 80 percent of market share are all combined with health insurance companies – namely CVS/Aetna (Caremark), UnitedHealth (Optum Rx), and Cigna (Express Scripts). 

An important, and politically popular, area where this consolidation has played out is in the squeeze placed on small, independent pharmacists across the country. More than 300 community pharmacies have closed in the past year alone, out of an inability to operate or push back on unfair margins pushed by these PBM-insurer monopolies. As we have written here, the fees these PBMs charge have increased more than 100,000 percent over the past decade, and are quietly contributing significantly to the profits of the largest health insurers. 

We still have little insight into how these business lines interact with each other, and the ultimate impact that has on patients. Given the enormous influence just three insurance companies have over what prescriptions Americans can receive, and how much should be paid for each prescription, the task force would do well to focus on what insurers and PBMs are doing behind the scenes to maximize profits and limit patient access to prescription drugs. It’s already gaining traction on Capitol Hill, with one Congressman recently saying, “I’ll continue to bust this up … this vertical integration in health care.”

3. Prior authorization requests

CVS/Aetna shares were hammered after the company reported a significant increase in payment of Medicare Advantage claims during the first three month is of this year. Expect all insurers to notice. And as they have seen their forecasts fall short of Wall Street’s expectations – particularly because of increasing scrutiny in Washington of Medicare Advantage – these corporations will look to increase their already aggressive use of prior authorization to limit claims payments.

It is not as though insurers make seeking the care you need easy. Far from it. Prior authorization has become “medical injustice disguised as paperwork,” as the New York Times said in a recent, excellent video detailing the widespread nature of this profiteering practice. 

While not a stated direct focus of this task force, the increased impact of prior authorization in care delivery is a direct outgrowth of a few large health insurers effectively controlling the marketplace. As insurers directly employ more doctors and enroll more Americans in their plans, they can use prior authorization to increasingly determine whether a patient can get care, period. 

Scrutiny in this space could add momentum to increasing activity in state legislatures and Washington to rein in excessive prior authorization. As of early March, nine states and the District of Columbia had passed bills to limit how far insurers could go with prior authorization. And earlier this year, the Centers for Medicare and Medicaid released a final rule that is expected to save physicians $15 billion over the next decade by putting limits on insurer prior authorization tactics. 

4. Rising out-of-pocket costs

Regular readers of this newsletter know one of my crusades is to ensure folks who pay good money for health insurance – out of their paychecks or through their tax dollars – can use it when they need it. It was a big win earlier this year for the Lower Out of Pockets Now coalition (which I lead) when President Biden called for a cap on prescription drug out-of-pocket costs of $2,000 annually for everybody, not just Medicare beneficiaries. 

If there was true competition and real consumer choice in health insurance, payers wouldn’t be able to get away with increasingly shifting patients into high-deductible plans. But the fact that a few big players control the health insurance market has allowed the oligopoly of payers to do just that, with ever-rising deductibles alongside ever-rising premiums. 

The task force’s focus on price fixing, collusion, and transparency in health care costs will, I hope, include some focus on how insurers use their size and clout to drive up out-of-pocket costs and premiums simultaneously – with little recourse to employers or their employees.

5. Implementing crystal clear laws and rules in health care

You know you’re a monopoly or close to it when you can pretty much do whatever you want and get away with it. Look no further than America’s health insurance companies and implementation of the No Surprises Act. 

As I wrote earlier this year, Congress and CMS have been clear about how out-of-network hospital bills should be negotiated between insurers and physicians. Yet in case after case, including many that have become the basis of lawsuits, insurers are clearly flouting the Act passed by Congress and the rules promulgated by CMS. Payers are doing this, doctors have said, simply because of their size and ability to weather criticism from physicians, regulators, and the courts – while doctors struggle to pay their bills with significant payments still owed pending out-of-network negotiations with insurers. 

One would hope, at a minimum, this task force, focused on rooting out the ills of monopolies, would document how insurers are well aware of how they are supposed to implement legislation like the No Surprises Act, but flout it anyway.

As a Nightmare Brews on Wall Street for CVS, Executives Scramble to Quell Investors

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I wrote Monday about how the additional Medicare claims CVS/Aetna paid during the first three months of this year prompted a massive selloff of the company’s shares, sending the stock price to a 15-year low.

During CVS’s May 1 call with investors, CEO Karen Lynch and CFO Thomas Cowhey assured them the company had already begun taking action to avoid paying more for care in the future than Wall Street found acceptable.

Among the solutions they mentioned: 

Ratcheting up the process called prior authorization that results in delays and denials of coverage requests from physicians and hospitals; kicking doctors and hospitals out of its provider networks; hiking premiums; slashing benefits; and abandoning neighborhoods where the company can’t make as much money as investors demand.

On Tuesday at the Bank of America Securities Healthcare Conference, Cowhey doubled down on that commitment to shareholders and provided a little more color about what those actions would look like and how many human beings would be affected. As Modern Healthcare reported:

Headed into next year, Aetna may adjust benefits, tighten its prior authorization policies, reassess its provider networks and exit markets, CVS Chief Financial Officer Tom Cowhey told investors. It will also reevaluate vision, dental, flexible spending cards, fitness and transportation benefits, he said. Aetna is also working with its employer Medicare Advantage customers on how to appropriately price their business, he said. 

Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible, and that’s OK because we need to get this business back on track,” Cowhey said.

Insurers use the word “members” to refer to people enrolled in their health plans. You can apply for “membership” and pay your dues (premiums), but insurers ultimately decide whether you can stay in their clubs. If they think you’re making too many trips to the club’s buffet or selecting the most expensive items, your membership can–and will–be revoked.

That mention of “employer Medicare Advantage customers” stood out to me and should be of concern to people like New York Mayor Eric Adams, who was sold on the promise that the city could save millions by forcing municipal retirees out of traditional Medicare and into an Aetna Medicare Advantage plan. A significant percentage of Aetna’s Medicare Advantage “membership” includes people who retired from employers that cut a deal with Aetna and other insurers to provide retirees with access to care. Despite ongoing protests from thousands of city retirees, Adams has pressed ahead with the forced migration of retirees to Aetna’s club. He and the city’s taxpayers will find out soon that Aetna will insist on renegotiating the deal.

Back to that 10%. Aetna now has about 4.2 million Medicare Advantage “members,” but it has decided that around 420,000 of those human beings must be cut loose. Keep in mind that those humans are not among the most Internet-savvy and knowledgeable of the bewildering world of health insurance. Many of them have physical and mental impairments. They will be cast to the other wolves in the Medicare Advantage business.

Welcome to a world in which Wall Street increasingly calls the shots and decides which health insurance clubs you can apply to and whether those clubs will allow you to get the tests, treatments and medications you need to see another sunrise.

As Modern Healthcare noted, Aetna is not alone in tightening the screws on its Medicare Advantage members and setting many of them adrift. Humana, which has also greatly disappointed Wall Street because of higher-than-expected health care “utilization,” told investors it would be taking the same actions as Aetna.

But Aetna in particular has a history of ruthlessly cutting ties with humans who become a drain on profits. As I wrote in Deadly Spin in 2010:

Aetna was so aggressive in getting rid of accounts it no longer wanted after a string of acquisitions in the 1990s that it shed 8 million (yes, 8 million) enrollees over the course of a few years. The Wall Street Journal reported in 2004 that Aetna had spent more than $20 million to install new technology that enabled it “to identify and dump unprofitable corporate accounts.” Aetna’s investors rewarded the company by running up the stock price. 

I added this later in the book:

One of my responsibilities at Cigna was to handle the communication of financial updates to the media, so I knew just how important it was for insurers not to disappoint investors with a rising MLR [medical loss ratio, the ratio of paid claims to revenues]. Even very profitable insurers can see sharp declines in their stock prices after admitting that they had failed to trim medical expenses as much as investors expected. Aetna’s stock price once fell more than 20% in a single day after executives disclosed that the company had spent slightly more on medical claims during the most recent quarter than in a previous period. The “sell alarm” was sounded when the company’s first quarter MLR increased to 79.4% from 77.9% the previous year.

I could always tell how busy my day was going to be when Cigna announced earnings by looking at the MLR numbers. If shareholders were disappointed, the stock price would almost certainly drop, and my phone would ring constantly with financial reporters wanting to know what went wrong.

May 1 was a deja-vu-all-over-again day for Aetna. You can be certain the company’s flacks had a terrible day–but not as terrible as the day coming soon for Aetna’s members when they try to use their membership cards.

Speaking of Lynch, one of the people commenting on the piece I wrote Monday suggested I might have been a bit too tough on Lynch, who I know and liked as a human being when we both worked at Cigna. The commenter wrote that:

After finishing Karen S. Lynch’s book, “Taking Up Space,” I came to the conclusion that she indeed has a very strong conscience and sense of responsibility, not totally to shareholders, but more importantly to the insured people under Aetna and the customers of CVS.”

I don’t doubt Karen Lynch is a good person, and I know she is someone whose rise to become arguably the business world’s most powerful woman was anything but easy, as the magazine for alumni of Boston College, her alma mater, noted in a profile of her last year. Quoting from a speech she delivered to CVS employees a few years earlier, Daniel McGinn wrote: 

Lynch began with a story to illustrate why she was so passionate about health care. She described how she’d grown up on Cape Cod as the third of four children. Her parents’ relationship broke up when she was very young and her father disappeared, leaving her mom, Irene, a nurse who struggled with depression, as a single parent. In 1975, when Lynch was 12, Irene took her own life, leaving the four children effectively orphaned. 

During her speech, several thousand employees listened in stunned silence as Lynch explained how her mom’s life might have turned out differently if she’d had access to better medical treatment, or if there’d been less stigma and shame about getting help for depression. She then talked about how an insurance company like Aetna could play a role in reducing that stigma, increasing access to care, and helping people live with mental illness. 

I’m sure when she goes home at night these days, Lynch worries about what will happen to those 420,000 other humans who will soon be scrambling to get the care they need or to find another club that will take them. Their lives most definitely will turn out differently to appease the rich people who control her and the rest of us.

But she is stuck in a job whose real bosses–investors and Wall Street financial analysts–care far more about the MLR, earnings per share and profit margins than the fate of human beings less fortunate than they are.

Foundational Steps Vital on the Road to Universal Health Care

Posted on by • Posted in ACA, Financialization of Health, Health Insurance Coverage Adequacy, Health Insurance Denial, Health Insurance Industry, Healthcare Reform, Medical Debt, Medical-Financial-Industrial Complex (MFIC), Medical-Industrial Complex, Medicare for All, Pandemic, Physicians for a National Health Program, Profit Motive, Universal Coverage, Universal Healthcare System • Leave a comment
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“Incrementalism.” The word is perceived as the enemy of hope for universal health care in the United States.

Those who advocate for single-payer, expanded Medicare for all tend to be on the left side of the political spectrum, and we have advanced the movement while pushing back on incremental change. But the profit-taking health industry giants in what’s been called the medical-industrial complex are pursuing their own incremental agenda, designed to sustain the outrageously expensive and unfair status quo.

In recent years, as the financial sector of the U.S. economy has joined that unholy alliance, scholars have begun writing about the “financialization” of health care.

It has morphed into the medical-financial-industrial complex (MFIC) so vast and deeply entrenched in our economy that a single piece of legislation to achieve our goal–even with growing support in Congress–remains far short of enough votes to enact.

If we are to see the day when all Americans can access care without significant financial barriers, policy changes that move us closer to that goal must be pursued as aggressively as we fight against the changes that push universal health care into the distant future. Labeling all positive steps toward universal health care as unacceptable “incrementalism” could have the effect of aiding and abetting the MFIC and increase the chances of a worst-case scenario: Medicare Advantage for all, a goal of the giants in the private insurance business. But words matter. Instead of “incremental,” let’s call the essential positive steps forward as “foundational” and not undermine them.

The pandemic crisis exposed the weaknesses of our health system. When millions of emergencies in the form of COVID-19 infections overtook the system, most providers were ill-prepared and understaffed. More than 1.1 million U.S. citizens died of COVID-19-related illness, according to the Centers for Disease Control. 

For years, the MFIC had been advancing its agenda, even as the U.S. was losing ground in life expectancy and major measures of health outcomes. While health care profits soared in the years leading up to and during the pandemic, those of us in the single-payer movement demanded improved, expanded Medicare for all.  And we were right to do so. Progress came through almost every effort. The number of advocates grew, and more newly elected leaders supported a single-payer plan. Bernie Sanders’ 2016 presidential bid proved that millions of Americans were fed up with having to delay or avoid care altogether because it simply cost too much or because insurance companies refused to cover needed tests, treatments and medications.

But as the demand for systemic overhaul grew, the health care industry was making strategic political contributions and finding ways to gain even more control of health policy and the political process itself. 

Over the years, many in the universal health care movement have opposed foundational change for strategic reasons. Some movement leaders believed that backing small changes or tweaks to the current system at best deflected from our ultimate goal. And when the Patient Protection and Affordable Care Act was passed, many on the left viewed it as a Band-Aid if not an outright gift to the MFIC. While many physicians in our movement knew that the law’s Medicaid expansion and the provisions making it illegal for insurers to refuse coverage to people with preexisting conditions would save many thousands of lives, they worried that the ACA would further empower big insurance companies. Both positions were valid.

After the passage of the ACA, more of us had insurance cards in our wallets and access to needed care for the first time, although high premiums and out-of-pocket costs have become insurmountable barriers for many. Meanwhile, industry profits soared. 

The industry expanded its turf. Hospitals grew larger, stand-alone urgent care clinics, often owned by corporate conglomerates, opened on street corners in cities across the country, private insurance rolls grew, disease management schemes proliferated, and hospital and drug prices continued the march upward. The money flowing into the campaign coffers of political candidates made industry-favored incremental changes an easier lift.

The MFIC now enjoys a hold on nearly one-fifth of our GDP. Almost one of every five dollars flowing through our economy does so because of that ever-expanding, profit-focused complex.  

To change this “system” would require an overhaul of the whole economy. Single-payer advocates must consider that herculean task as they continue their work. We must understand that the true system of universal health care we envision would also disrupt the financial industry – banks, collection agencies, investors – an often-forgotten but extraordinarily powerful segment of the corporate-run complex.  

Even if the research and data show that improved, expanded Medicare for all would save money and lives (and they do show that), that is not motivating for the finance folks, who fear that without unfettered control of health care, they might profit less. Eliminating medical bills and debt would be marvelous for patients but not for a large segment of the financial community, including bankruptcy attorneys.

Following the money in U.S. health care means understanding how deep and far the tentacles of profit reach, and how embedded they are now.

We know the MFIC positioned itself to continue growing profits and building more capacity. The industry made steady, incremental progress toward that goal. There is no illusion that better overall health for Americans is the mission of the stockholders who drive this industry. No matter what the marketers tell us, patients are not their priority. If too many of us get healthier, we might not use as much care and generate as much money for the owners and providers. Private insurers want enough premiums and government perks to keep flowing their way to keep the C-Suite and Wall Street happy.

More than health insurers

Health insurers are far from the only rapidly expanding component of the MFIC. A recent documentary, “American Hospitals: Healing a Broken System,” for example, explores a segment of the U.S. health industry that is often overlooked by policymakers and the media. Though they were unprepared for the national health crisis, hospitals endured the pandemic in this country largely because the dedicated doctors, nurses and ancillary staff risked their own lives to keep caring for COVID-19 patients while everything from masks, gowns and gloves to thermometers and respirators were in short supply. But make no mistake, many hospitals were still making money through the pandemic. In fact, some boosted their already high profits, and private insurance companies had practically found profit-making nirvana. Patients put off everything from colonoscopies to knee replacements, physical therapy to MRIs. Procedures not done meant claims not submitted, while monthly insurance premiums kept right on coming and right on increasing. 

The pandemic was a time of turmoil for most businesses and families, yet the MFIC took its share of profits. It was pure gold for many hospitals until staffing pressures and supply issues grew more dire, COVID patients were still in need of care, and more general patient care needs started to reemerge.

We might be forgiven for thinking there wasn’t much regulating or legislating done around health care during the pandemic years. We’d be wrong. There was a flurry of legislation at the state level as some states took on the abuses of the private insurance industry and hospital billing practices. 

And the movement to improve and expand traditional Medicare to cover all of us stayed active, though somewhat muted. The bills before Congress that expanded access to Medicaid during the pandemic through a continuous enrollment provision offered access to care for millions of people. Yet as that COVID-era expansion ended, many of those patients were left without coverage or access to care. This might have been a chance to raise the issue loudly, but the social justice movement did not sufficiently activate national support for maintaining continuous enrollment in Medicaid. Is that the kind of foundational change worth fighting for? I would argue it most certainly is.

As those previously covered by Medicaid enter this “unwinding” phase, many will be unable to secure equivalent or adequate health insurance coverage. The money folks began to worry as coverage waned. After all, sick people will show up needing care and they will not be able to pay for it. As of this writing, patient advocacy groups are largely on the sidelines.

 But Allina Health took action. The hospital chain announced it would no longer treat patients with medical debt. After days of negative press, the company did an about-face. 

Throughout the country, even as the pandemic loomed, the universal, single-payer movement focused on explaining to candidates and elected officials why improving and expanding Medicare to cover all of us not only is a moral imperative but also makes economic sense. In many ways, the movement has been tremendously effective: More than 130 city and county governing bodies have passed resolutions in support of Medicare for all, including in Seattle, Denver, Cincinnati, Washington, D.C., Tampa, Sacramento, Los Angeles, St. Louis, Atlanta, Duluth, Baltimore, and Cook County (Chicago). 

The Medicare for All Act, sponsored by Rep Pramila Jayapal (D-Wash.) and Sanders (I-Vt.) has 113 co-sponsors in the House and 14 in the Senate. Another bill allowing states to establish their own universal health care programs has been introduced in the House and will be introduced soon in the Senate.

Moving us closer

The late Dr. Quentin Young was a young Barack Obama’s doctor in Chicago. Young spoke to his president-in-the-making patient about universal health care and Obama, then a state legislator, famously answered that he would support a single-payer plan if we were starting from scratch. Many in the Medicare–for-all movement dismissed that statement as accepting corporate control of health care. 

But Young would steadfastly advocate for single-payer health care for years to come and as one of the founding forces behind Physicians for a National Health Program. Once Dr. Young was asked if the movement should support incremental changes. He answered, “If a measure makes it easier and moves us closer to achieving health care for all of us, we should support that wholeheartedly. And if a measure makes it harder to get to single-payer, we need to oppose it and work to defeat that measure.”  Many people liked that response. Others were not persuaded.

But in recent years, PHNP has become a national leader in a broad-based effort to halt the privatization of Medicare through so-called Medicare Advantage plans and other means. A case can be made that those are incremental/foundational but essential steps to achieving the ultimate goal.

We must fight incrementally sometimes, for instance when traditional Medicare is threatened with further privatization. Bit by painful bit, a program that has served this nation so well for more than 50 years will be carved up and given over to the private insurance industry unless the foundational steps taken by the industry are met with resistance and facts at every turn. We can achieve our goal by playing the short game as well as the long game. Foundational change can be and has been powerful. It just has to be focused on the health and well-being of every person.

CVS CEO to Wall Street: People in Medicare Advantage Are in for a World of Hurt as We Focus on Profits

Posted on by • Posted in 2024 Election Issues, CVS Health, Health Insurance Coverage Adequacy, Health Insurance Denial, Health Insurance Industry, Health Insurance Premiums, High Deductible Health Plans, Investor Expectations, Medicare, Medicare Advantage, Out of Pocket Expenses, Privatization, Wall Street • Leave a comment
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ALSO: We’re premiering our Magic Translation Box to help you decipher corporate jargon and understand what’s coming down the pike.

If you are enrolled in an Aetna Medicare Advantage plan, now might be a good time to get more nervous than usual.

Wall Street is not happy with Aetna’s parent, CVS Health. In response to that unhappiness, triggered by the company’s admission that it has been paying more claims than usual, CVS execs have promised to do whatever it takes to get profit margins back to a level investors deem suitable. 

That means the odds have increased that Aetna will refuse to cover the treatments and medications your doctor says you need. It also means CVS/Aetna likely will increase your premiums next year and might dump you altogether. The company has a long history of doing just that, as you’ll see below. 

Medicare Advantage companies in general are facing what Wall Street financial analysts call headwinds, and those winds are now coming from several sources: increased Congressional scrutiny of insurers’ business practices, Biden administration efforts to end years of overpayments that have cost taxpayers hundreds of billions of dollars, enrollee discontent, and a gathering storm of negative press. 

To understand the pressures CVS CEO Karen Lynch and her C-Suite team are under to satisfy the company’s remaining shareholders (many have fled), you need to know and understand what they told them in recent weeks–and what she undoubtedly will have to say again, with conviction, this coming Thursday when CVS holds its annual meeting of shareholders. You can be certain Lynch’s staff has prepared a binder chock full of the rudest questions she could face from rich folks (mostly institutional investors) who’ve become a little less rich in recent months as the golden calf calf called Medicare Advantage has lost some of its luster. (My former colleagues and I used to put together such a CEO-briefing binder during my Cigna days, which coincided with Lynch’s years at Cigna.)

To help with that understanding, we’re introducing the HEALTH CARE un-covered Magic Translation Box (MTB). We’ll fire it up occasionally to decipher the coded language executives use when they have to deal with analysts and investors in a public setting. We’ll start with what Lynch and her team told analysts on May 1 when CVS announced first-quarter 2024 results that caused a stampede at the New York Stock Exchange.

Lynch: We recently received the final 2025 (Medicare Advantage) rate notice (from the Center for Medicare and Medicaid Services), and when combined with the Part D changes prescribed by the Inflation Reduction Act, we believe the rate is insufficient. This update will result in significant added disruption to benefit levels and choice for seniors across the country. While we strive to deliver benefit stability to seniors, we will be adjusting plan-level benefits and exiting counties as we construct our bid for 2025. We are committed to improving margins.

Magic Translation Box: Can you believe it? CMS did not bend to industry pressure to pay MA plans what we demanded for next year. We only got a modest increase, not enough, in our opinion, to protect our profit margins. To make matters worse, starting next year we won’t be able to make people enrolled in Medicare prescription drug plans (Part D) pay more than $2,000 out of their own pockets, thanks to the Inflation Reduction Act President Biden signed in 2022. So, to make sure you, our most important stakeholder, once again have a good return on your investment, we will notify CMS next month that we will slash the value of Medicare Advantage plans by reducing or eliminating some benefits, like dental, hearing and vision, that attract people to MA plans in the first place. And, for good measure, we’ll be dumping Medicare Advantage enrollees who live in zip codes where we can’t make as much money as we’d like. For them: too bad, so sad. For you: more money in your bank account. And for extra good measure, to keep seniors from blaming greedy us for what we have in store for them, our industry will be bankrolling dark money ads to persuade voters that Biden and the Democrats are the bad guys cutting Medicare. 

Later during CVS’s earnings call, CFO Thomas Cowhey reiterated Lynch’s remarks about reducing benefits.

Cowhey: So, we’ve given you all the pieces to kind of understand why we think it (Medicare Advantage) will lose a significant amount of money this year. But as you think about improvement there, obviously there’s a lot of work that we still need to do to understand what benefits we’re going to adjust and what ones we can and can’t…To the extent that we don’t believe we can credibly recapture margin in a reasonable period of time, we will exit those counties…(And) as we’ve all mentioned we’re going to be taking significant pricing actions and really it’s going to depend on what our competitors do.

Magic Translation Box: We’re under the gun to figure this out because we have to notify CMS by June 3 how much we will increase Medicare Advantage premiums and cut benefits next year and which counties we’ll abandon altogether. We’ll also be watching what our competitors do, but we know from what they’ve been telling you guys that they, too, will be dumping enrollees, hiking premiums and slashing benefits. 

To make sure investors couldn’t miss what they were saying, Lynch jumped back into the conversation to make clear they knew they were #1 in her book:

Lynch: I’m just going to reiterate what I said in my prepared remarks. (You can bet what follows were prepared, too.) We are committed to improving margin in Medicare Advantage [emphasis added] and we will do so by pricing for the expected trends. We will do so by adjusting benefits and exiting service counties. And we are committed to doing that.

Magic Translation Box: Have I made myself clear? We will do whatever it takes to deliver the profits you expect. We will keep a closer eye on how much care people are trying to get and we’ll swing into action faster next time if we see evidence of an uptick. There will be carnage, but you guys rule. You mean a lot more to us than those old and disabled people who don’t have nearly as much money as you do in their bank accounts. 

This will not be the first time Aetna has dumped health plan enrollees who were a drain on profits. In 2000, when Medicare Advantage was called Medicare+Choice, Aetna notified the Clinton administration it would stop offering Medicare plans in 14 states, affecting 355,000 people, more than half of Aetna’s total Medicare enrollment at the time. Other companies, including Cigna, did the same thing. My team and I wrote a press release to announce that Cigna would be bailing from almost all the markets where we sold private Medicare plans.

We of course blamed the federal government (i.e., the Democrats) for being the skinflints that made it necessary to bail. Our CEO at the time, Ed Hanway, said the government just couldn’t be relied upon to be a reliable “partner.” 

Back then, just a relatively small percentage of Medicare beneficiaries were in private plans. Today, more than half of Medicare-eligible Americans are enrolled in a Medicare Advantage plan, which means the disruption could be much worse this time. Some people in counties where Aetna and other companies stop offering plans likely will not find a replacement plan with the same provider network, premiums and benefits.

But in most places, those who get dumped will be stuck in the volatile, often nightmarish Medicare Advantage world, unable to return to traditional Medicare and buy a Medicare supplement policy to cover their out-of-pocket obligations.

That’s because in all but a handful of states, seniors and disabled people will not be able to buy a Medicare supplement policy as cheaply as they could within six months of becoming eligible for Medicare benefits. After that, Medicare supplement insurers, including Aetna, get their underwriters involved. If your health isn’t excellent, expect to pay a king’s ransom for a Medigap policy.

Medicare Advantage extras on the chopping block in 2025

Posted on by • Posted in Health Insurance Industry, Medicare Advantage, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance • Leave a comment
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Medicare Advantage insurers are planning to pare down their plan offerings in 2025. 

Facing lower reimbursement rates from CMS and higher medical costs, many plan executives said they will prioritize margins over growing their membership numbers. 

Brian Kane, CEO of Aetna, told investors May 1 that the company will prioritize “margins over membership” in 2025. The company will exit counties where it believes it can’t be profitable, Mr. Kane said.  

“It’s hard to say right now that we won’t have a meaningful decrease in membership,” Mr. Kane said. “It’s certainly possible.” 

Aetna’s competitors will be faced with the same choices, Mr. Kane said. 

Humana executives also said the company is eyeing market exits in 2025. Susan Diamond, Humana’s CFO, said the company is expecting a net decline in its MA membership next year. 

“Whether that is incrementally larger or smaller based on the other plans will be very dependent on what we see across the competitive landscape,” Ms. Diamond said April 24. 

On first-quarter earnings calls, payer executives told investors they are disappointed in CMS’ 2025 rate notice. The notice will decrease benchmark payments, which insurers say amounts to a cut in funding for the program. 

Medical costs are also on the rise in Medicare Advantage. CVS Health told its investors that Medicare Advantage costs keep climbing, partly driven by seasonal inpatient admissions. Outpatient services, including mental health and pharmacy, and dental spending also increased costs, CVS said. 

In its final rate notice published April 1, CMS said it was aware Medicare Advantage organizations were reporting rising costs but was “not aware of all of the specific drivers accounting for the experience of these MA organizations. We have reviewed incomplete fourth quarter 2023 Medicare FFS incurred experience and it is consistent with our projections.” 

Payers have also said they will cut back on supplemental benefits to account for lower rates. 

CVS Health CEO Karen Lynch said it wil adjust plan-level benefits in 2025. The company led the industry in growth in 2024 but was a “notable outlier” compared to its peers in adding on supplemental benefits to entice members, The Wall Street Journal reported May 1.

Some Aetna plans offer a fitness reimbursement, according to The Wall Street Journal. Members could cash in the benefit for pickleball paddles, golf clubs and other sports equipment — but these extras could be a thing of the past in a tougher rate environment. 

While every payer criticized CMS’s proposed rates, some executives said they would hold off on discussing their specific strategy until final bids are due. Insurers must send their MA plan proposals for 2025 to CMS by early June. 

“It’s too early to provide specifics for the 2025 bid at this stage,” Elevance Health CEO Gail Boudreaux told investors. “I’m going to repeat, we’re looking to really balance growth and margins.” 

Wall Street Yawned as Congress Grilled UnitedHealth’s CEO but Went Ballistic on CVS/Aetna Over Medicare Advantage Claims

Posted on by • Posted in Citizens United vs Federal Election Commission, CVS Health, Federal Trade Commission (FTC), Health Insurance Industry, Lobbyist, Market Consolidation, Market Power, Market Share, Medicare Advantage, Monopoly Behavior, Pharmaceutical Industry, Pharmacy Benefits Management, UnitedHealth Group, UnitedHealthcare, Vertical Consolidation, Vertical Integration • Leave a comment
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After UnitedHealth Group CEO Andrew Witty’s appearances at two congressional committee hearings last week, I had planned to write a story about what the lawmakers had to say. One idea I considered was to publish a compilation of some of the best zingers, and there were plenty, from Democrats and Republicans alike. 

I reconsidered that idea because I know from the nearly half-century I have spent on or around Capitol Hill in one capacity or another that those zingers were carefully crafted by staffers who know how to write talking points to make them irresistible to the media. As a young Washington correspondent in the mid-to-late’70s, I included countless talking points in the stories I wrote for Scripps-Howard newspapers. After that, I wrote talking points for a gubernatorial candidate in Tennessee. I would go from there to write scads of them for CEOs and lobbyists to use with politicians and reporters during my 20 years in the health insurance business. 

I know the game. And I know that despite all the arrows 40 members of Congress on both sides of the Hill shot at Witty last Wednesday, little if anything that could significantly change how UnitedHealth and the other big insurers do business will be enacted this year. 

Some reforms that would force their pharmacy benefit managers to be more “transparent” and that would ban some of the many fees they charge might wind up in a funding bill in the coming months, but you can be sure Big Insurance will spend millions of your premium dollars to keep anything from passing that might shrink profit margins even slightly.

Money in politics is the elephant in any Congressional hearing room or executive branch office you might find yourself in (and it’s why I coauthored Nation on the Take with Nick Penniman).

You will hear plenty of sound and fury in those rooms but don’t hold your breath waiting for relief from ever-increasing premiums and out-of-pocket requirements and the many other barriers Big Insurance has erected to keep you from getting the care you need.

It is those same barriers doctors and nurses cite when they acknowledge the “moral injury” they incur trying to care for their patients under the tightening constraints imposed on them by profit-obsessed insurers, investors and giant hospital-based systems. 

Funny not funny

Cartoonist Stephan Pastis captured the consequences of the corporate takeover of our government, accelerated by the Supreme Court’s 2010 landmark Citizens United vs. Federal Election Commission ruling, in his Pearls Before Swine cartoon strip Sunday. 

Rat: Where are you going, Pig?

Pig: To a politician’s rally. I’m taking my magic translation box.

Rat: He doesn’t speak English?

Pig: He speaks politicianish. This translates it into the truth. Come see.

Politician: In conclusion, if you send me to Washington, I’ll clean up this corrupt system and fight for you everyday hard-working Americans. God bless you. God bless the troops. And God bless America.

Magic translation box: I am given millions of dollars by the rich and the powerful to keep this rigged system exactly as it is. Until you change that, none of this will ever change and we’ll keep hoping you’re too distracted to notice. 

Politician’s campaign goon: We’re gonna need a word with you.

Magic translation box: This is too much truth for one comic strip. Prepare to be disappeared.

Rat: I don’t know him.   

Back to Sir Witty’s time on the hot seat. It attracted a fair amount of media coverage, chock full of politicians’ talking points, including in The New York Times and The Washington Post. (You can read this short Reuters story for free.) Witty, of course, came equipped with his own talking points, and he followed his PR and legal teams’ counsel: to be contrite at every opportunity; to extol the supposed benefits of bigness in health care (UnitedHealth being by far the world’s largest health care corporation) all the while stressing that his company is not really all that big because it doesn’t, you know, own hospitals and pharmaceutical companies [yet]; and to assure us all that the fixes to its hacked claims-handling subsidiary Change Healthcare are all but in.

Congress? Meh. Paying for care? WTF!

Wall Street was relieved and impressed that Witty acquitted himself so well. Investors shrugged off the many barbs aimed at him and his vast international empire. By the end of the day Wednesday, the company’s stock price had actually inched up a few cents, to $484.11. A modest 2.7 million shares of UnitedHealth’s stock were traded that day, considerably fewer than usual. 

Instead of punishing UnitedHealth, investors inflicted massive pain on its chief rival, CVS, which owns Aetna. On the same day Witty went to Washington, CVS had to disclose that it missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point Wednesday before settling at $56.31 by the time the New York Stock Exchange closed. An astonishing 65.7 million shares of CVS stock were traded that day. 

The company’s sin: paying too many claims for seniors and disabled people enrolled in its Medicare Advantage plans. CVS’s stock price continued to slide throughout the week, ending at $55.90 on Friday afternoon. UnitedHealth’s stock price kept going up, closing at $492.45 on Friday. CVS gained a bit on Monday, closing at $55.97. UnitedHealth was up to $494.38.

Postscript: I do want to bring to your attention one exchange between Witty and Rep. Buddy Carter (R-Ga.) during the House Energy and Commerce committee hearing. Carter is a pharmacist who has seen firsthand how UnitedHealth’s virtual integration–operating health insurance companies with one hand and racking up physician practices and clinics with the other–and its PBM’s business practices have contributed to the closure of hundreds of independent pharmacies in recent years. He’s also seen patients walk away from the pharmacy counter without their medications because of PBMs’ out-of-pocket demands (often hundreds and thousands of dollars). And he’s seen other patients face life-threatenng delays because of industry prior authorization requirements. Carter was instrumental in persuading the Federal Trade Commission to investigate PBMs’ ownership and business practices. He told Witty: 

I’m going to continue to bust this up…This vertical integration in health care in general has got to end.

More power to you, Mr. Carter. 

Insurers brace for continued Medicare Advantage medical costs

Posted on by • Posted in Health Insurance Industry, Medical Loss Ratio (MLR), Medicare Advantage, Utilization Trends • Leave a comment

https://www.healthcaredive.com/news/health-insurer-medicare-advantage-utilization-2024/707360

The big question coming out of the health insurance earnings season is how much elevated utilization among seniors is carrying over into 2024.

Medicare Advantage medical costs dominated fourth-quarter discussions between health insurers and investors, after higher healthcare utilization popped up like weeds in some segments of each payers’ business.

Yet health insurers’ forecasts for how higher utilization will affect their performance in 2024 are night and day.

Some payers controlled medical costs more effectively than analysts expected, said rising spending shouldn’t affect their outlooks for this year or guided to a stronger 2024 than previously forecast. That group includes UnitedHealth, Centene, Elevance and Cigna.

However, Humana and CVS cut their 2024 earnings outlooks on the heels of last year’s results, and said they expect elevated medical costs to continue this year.

Humana’s outlook is especially grim: The Kentucky-based payer’s earnings expectations for 2024 came in about half as low as analysts had expected.

Even payers that emerged from 2023 with their financial outlooks unscathed said they plan to cut benefits or raise premiums this year. The plan redesigns are to protect margins in MA — a business that historically generates significant profits, but is facing challenges that threaten to kill the golden goose.

Why didn’t payers see medical costs coming?

MA plans have skyrocketed in popularity. More than half of Medicare seniors are currently signed up for the plans, attracted by benefits like lower monthly premiums and dental and vision coverage. An onslaught of marketing by insurers didn’t hurt, either, as payers jockey for members. Competition is fierce, as MA margins per enrollee can be twice as high as those in other types of plans.

Yet, more members are creating more problems for some insurers because of rising medical utilization. Starting in the second quarter last year, seniors sought out medical care they had delayed during the COVID-19 pandemic, hiking insurers’ spending.

For example, CVS added 800,000 MA enrollees for 2024, mostly nabbed from other payers after CVS aggressively expanded its benefits. But that’s coming back to haunt the Rhode Island-based insurer, which cut its earnings per share outlook for this year due to high medical costs.

There are a few potential explanations for what’s driving the elevated utilization, and why insurers might not have properly forecast the uptick in trend, according to J.P. Morgan analyst Lisa Gill.

Enrollees in MA tend to be healthier than those in traditional Medicare. But as more seniors join MA, the program’s risk population could be skewing sicker, Gill wrote in an early February research note. Insurers could have missed early warning signs of higher acuity as seniors avoided doctor’s offices during the pandemic.

Higher demand could have also existed earlier, but providers might not have been able to address it because of labor shortages that have now ameliorated, Gill said. Similarly, insurers could have added new MA enrollees with less diagnosis history relative to the rest of their population, resulting in lower visibility into their conditions.

Medical loss ratio is a useful metric for understanding how unexpectedly high utilization is affecting insurers.

Medical loss ratio, or MLR, is a percentage of how much in healthcare premiums insurers spend on clinical services and quality improvement. The higher the MLR, the less in premiums insurers are spending on administration or marketing — or retaining as profit. As such, insurers generally try to keep their MLRs low (though within regulatory bounds to avoid sanctions).

MLRs soared in payers’ Medicare businesses in the fourth quarter, as the utilization trends that emerged earlier in 2023 conflated with a typical seasonal rise in medical spending during the winter months.

Utilization inflation

Insurers chalked the increase in medical costs up to different drivers.

Seniors covered by UnitedHealth and Humana, which together hold almost half of the total MA market share, continued to seek outpatient care in droves in the fourth quarter, including procedures like orthopedic surgeries.

UnitedHealth’s members required more spending on seasonal diseases like the flu, COVID or respiratory virus RSV. Elevance, Centene and CVS also reported elevated outpatient care overall for things like elective procedures, along with higher spend on seasonal needs.

That wasn’t the case for Cigna — which had lower than expected spending on seasonal diseases — and Humana. Humana’s uptick in care was “not respiratory driven,” said CFO Susan Diamond on the payer’s fourth-quarter earnings call in January.

“We don’t have any clear indicators that it is something you can reasonably assume is seasonal,” Diamond said.

As for inpatient care, Centene and CVS didn’t report higher utilization of hospital services than expected. Elevance also didn’t say that inpatient trends were contributing to growing costs.

Yet, UnitedHealth and Humana warned investors about rising inpatient costs, which is concerning for insurers given hospital care is more expensive to cover. UnitedHealth blamed pricey COVID admissions, while Humana said it was seeing more short stays in hospitals across the board.

Humana’s Diamond said recent government regulations requiring MA payers to comply with coverage determinations in traditional Medicare could be a potential driver of the higher inpatient spend. The rule requires insurers to cover an inpatient admission if the patient is expected to require hospital care for at least two midnights.

Other insurers said they had planned for the so-called “two-midnight rule.”

On Feb. 6, Centene CFO Drew Asher told investors that the payer had factored the rule into its planning for 2024. Meanwhile, CVS CFO Tom Cowhey said one day later the company had adjusted internally in response to the rule.

Looking forward

The increase in utilization — combined with weaker payment rates, changes to MA quality ratings and a shifting risk adjustment model — have created an updraft for MLRs, especially for insurers with high exposure to MA like Humana and UnitedHealth.

The big question is how much of this utilization will carry over into this year, and whether payers have properly accounted for utilization changes in their plan designs.

Every major insurer besides Elevance expects to record a higher MLR in 2024 than in 2023. Though, the size of the growth ranges from a 0.8 percentage point increase for UnitedHealth to a 2.7 percentage point increase for Humana.

The outlier, Elevance, expects its MLR to remain flat.

In response to the challenging financial environment, payers — even those that excelled in controlling medical costs last year — said they’ve been pulling back benefits, raising premiums or exiting underperforming markets to boost profitability.

That’s true for insurers that expect their MA membership to grow this year (UnitedHealth, CVS), and those that expect it to fall (Cigna) or stay flat (Elevance).

As a result, further growth could be curtailed as payers prioritize margins.

“We are first and foremost focused on recovering margin, and market share gains is a secondary consideration,” Brian Kane, who leads CVS’ health benefits division, told investors during its February earnings call.

“I look at next year as a year that I think the whole industry will possibly reprice. I don’t know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026,” Humana CEO Bruce Broussard said on the payer’s earnings call.

Insurers said they could revise plans further in light of MA rates for 2025 that the government proposed midway through the earnings reporting season. The rates represent a renewed effort by regulators to rein in growing spending in Medicare.

Executives with Humana, Centene and CVS all said the payment changes are insufficient to cover cost trends. Humana and Centene said the rule would result in a 1.6% and 1.3% drop in rates, respectively. (That’s before risk scoring, which should result in an overall increase in reimbursement in 2025).

Insurers warned regulators that seniors could see their benefits reduced if they finalize the rates as proposed.

“We’ll just adjust the bids accordingly,” Asher said on Centene’s call. “The products may be a little less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”