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Medicare Advantage Profits Decline, Patients at Risk

With a post-COVID rebound in medical costs and tighter regulation of payment rates, private MA plans are seeing lower profits and share prices. Who will pick up the slack? Enrollees, If they have their way. MA woes may pave the way for insurance without extractive intermediaries. (See below a webinar on Monday.)

June 1, 2024

The Medicare Bubble Has Burst; Government health-insurance program had been a gold mine for private insurers until recently
Wall Street Journal
May 17, 2024
By David Wainer

[HJM bolding]

With hundreds of billions of taxpayer dollars flowing to insurers in a fast-growing market buoyed by aging baby boomers, there was little not to like as far as Wall Street was concerned. Companies like UnitedHealth Group and Humana bet big on the program, and investors generally rewarded them for it. Medicare Advantage, in which the government pays insurers a set amount to manage the care of seniors, recently surpassed traditional Medicare’s share of beneficiaries. …

But the gold rush is over for investors, at least for now. After years of reports, lawsuits and whistleblower accounts accusing big insurers of gaming the system and overcharging the government, the Biden administration has made a series of policy changes that have negatively affected what the plans get paid. Meanwhile, a post-Covid surge in seniors’ medical costs caught insurers by surprise.

The stark drop in profitability is rattling corporate boards and investors. One of the biggest losers is CVS Health, whose Aetna unit bet big on Medicare right before costs soared. To gain market share, CVS-Aetna offered generous plans this year, surprising some executives at rival insurers. While the move paid off in terms of membership count—CVS added more than 700,000 Medicare Advantage members this year—the company underestimated what it would cost to insure them. In its first-quarter earnings report earlier this month, CVS said the segment helped drive medical costs $900 million higher than the company had expected. Its shares had their largest one-day drop in almost 15 years in response and are down 26% for the year, giving it a market capitalization of just over $70 billion. That is roughly what it paid for Aetna back in 2018.

CVS isn’t the only one in trouble: Medicare-focused insurers, some of which had vastly outperformed the stock market in the past several years, are underperforming this year. Humana shares are down more than 20% this year and even industry leader UnitedHealth, which was more conservative in how it priced its plans, was down as much as 16% for the year in April before recouping much of the losses.

… [W]hile declining profit expectations have negatively affected share performances, there are still plenty of profits to be made.

Take hard-hit Humana, which is mostly focused on Medicare Advantage. The firm is expected to earn significantly less in 2024, but analysts polled by FactSet still see it making just over $16 per share this year. By 2026, analysts expect earnings to rise back to $26 per share—some $3 billion in net income.

The high cost of covering seniors is likely a temporary problem for insurers, who get to submit their bids to the Centers for Medicare and Medicaid Services every year. While they are limited in the changes they can make, CVS and others said they are planning to exit some counties and cut back on things such as vision benefits to boost margins.

“The goal for next year is margin over membership,” CVS Chief Financial Officer Thomas Cowhey said at a recent conference. “Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible.” By all indications, other large players such as Humana will also be shifting from growth to profits. …

The tougher challenge is on the regulatory side. The Biden administration’s changes, from releasing stingier payment rates to changes in how programs can code patient risk, signal an era of tighter purse strings. With such a big part of their business at stake, the industry’s effort to sway public and policymakers’ opinions is expected to go into overdrive.

For decades, policymakers have sought to bring private insurers along as a way to manage soaring Medicare costs. In 2003, Congress passed the Medicare Modernization Act, which created Medicare Advantage as we know it. The idea, in a nutshell, is to bring down costs and improve care by allowing insurers to manage care, much like they do for the nation’s employers.

But critics point to studies showing that Medicare Advantage plans cost the government and taxpayers billions of dollars more than traditional Medicare.

“For well over a decade, Medicare Advantage plans have been making extremely high profits. What’s going on now are long overdue policy changes to bring their pricing and coding practices back into line,” said Dr. Don Berwick, former head of the Centers for Medicare and Medicaid Services.

In the near term, the best hope for a quick shift to insurers’ fortunes could be a Donald Trump win in the coming presidential elections


Taking Advantage: How Corporate Health Insurers Harm America’s Seniors
Physicians for a National Health Program
May 23, 2024

7.3 million: Number of MA beneficiaries who are underinsured based on their reporting of high health care costs, based on 2023 Commonwealth Fund study and STAT estimate of 2024 enrollment.


CVS CEO to Wall Street: People in Medicare Advantage Are in for a World of Hurt as We Focus on Profits
HEALTH CARE un-covered
May 13, 2024
By Wendell Potter

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.


Comment by: Jim Kahn

The major private insurers have relied on public programs like Medicare Advantage to drive huge revenue and profit growth in recent years. Profits were record-breaking during COVID, when overall medical care use dropped. Now finances are tumbling, due to pent-up medical demand and correction of out-of-control capitation rates by the Center for Medicare and Medicaid Services (CMS). MA momentum is slowed, if not stopped.

Today’s excerpts illustrate three important angles for this story. Coverage by the Wall Street Journal – the newspaper of record for US business – reveals the high perceived impact of this story. An excellent PNHP report systematically highlights how MA practices harm beneficiaries. And HEALTH CARE un-covered provides the much-needed interpretation of corporate-speak into honest and unpleasant truths.

Check out an upcoming PNHP webinar, “Taking Advantage: How corporate health insurers harm America’s seniors” with Sen. Elizabeth Warren, on June 3 (Monday) at 8 pm Eastern / 7 pm Central / 6 pm Mountain / 5 pm Pacific. Sign up here.

There’s no way to reconcile MA profits and patient welfare. Hundreds of billions of dollars extracted from Medicare into shareholder profit means less for patient care and a financial burden for all of us.

Is there another way? Well, yes, you may have seen it here once or twice before: A single public funder, paying providers directly without private for-profit intermediaries. It’s adapted from traditional (non-MA) Medicare.

About the Commentator, Jim Kahn

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Jim (James G.) Kahn, MD, MPH (editor) is an Emeritus Professor of Health Policy, Epidemiology, and Global Health at the University of California, San Francisco. His work focuses on the cost and effectiveness of prevention and treatment interventions in low and middle income countries, and on single payer economics in the U.S. He has studied, advocated, and educated on single payer since the 1994 campaign for Prop 186 in California, including two years as chair of Physicians for a National Health Program California.

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