Medicare Advantage (MA) has been a stronghold in the healthcare landscape, but a recent report from Moody’s Investors Service suggests a challenging road ahead for its profitability. The analysis indicates a noticeable decline in margins, dropping from 4.9% in 2019 to 3.4% in 2022. While the commercial risk-based sector experienced a smaller dip, Medicaid saw growth during this period, adding complexity to the overall scenario.
The data stems from reports from 10 key payers, collectively representing two-thirds of all MA enrollees. Notably, industry giants UnitedHealthcare, Humana, and Aetna dominate the MA space, with the report highlighting the formidable challenge disruptors face in scaling up to compete with these major players.
Despite their market dominance, even the industry giants are not immune to the pressures affecting the MA space. UnitedHealth and Humana, in particular, faced a surge in utilization in the latter half of the year, which is expected to pose a significant headwind through 2024. The upcoming fourth-quarter results of CVS Health, the parent company of Aetna, will provide more insights into how increased utilization has impacted them.
Moody’s analysts attribute the utilization spike to a combination of pent-up demand resulting from COVID-19 and a “log jam” in scheduling due to provider staffing issues. However, consensus on the ultimate cause remains elusive, underscoring the complexity of the situation.
Beyond concerns related to utilization, the MA program grapples with funding issues as the Medicare Trust Fund remains at risk of depletion. Additionally, changes to risk adjustment audits are anticipated to result in lower payments. These adjustments will be phased in over the next three years, prompting proactive measures from industry leaders like UnitedHealthcare, which has already made alterations to benefits and pricing to mitigate the impact of declining payouts.
As the Medicare Advantage landscape navigates these challenges, industry stakeholders are closely monitoring developments, seeking innovative solutions, and adapting strategies to ensure the continued viability and sustainability of this crucial healthcare segment.
