The Wall Street Journal reported on the 5th that private insurers are beginning to reduce Medicare Advantage benefits, streamline coverage, and even exit unprofitable markets, a decision that investors are applauding. Perks like dental care and free gym memberships, which seniors often receive as Medicare Advantage plans, are now being slashed.
The report noted that Medicare Advantage plans, which are offered through private insurers within the federal health insurance program, have grown rapidly in recent years, with investors optimistic about the potential for profit. However, rising health costs and declining government subsidies have left insurers on a cautious footing.
Humana and CVS Health, which includes Aetna, both reported better-than-expected quarterly earnings, sending their stock prices soaring. However, both insurers are reducing their Medicare Advantage business this year, with Humana estimating that plans open to direct purchase by seniors could lose 500,000 members.
In contrast, UnitedHealth Group aggressively expanded its Medicare business this year, only to suffer soaring costs, weaker-than-expected financial results, and a near-halving of its stock price. The company now plans to scale back its Medicare Advantage business by 2026, including reducing benefits and exiting the market, which will affect an estimated 600,000 members.
The reality for insurers is that if they want to return to profitability, they must slow growth or shrink the Medicare Advantage business. The same approach insurers are using to shrink Medicare Advantage is also being applied to Medicaid and the Affordable Care Act marketplace.
Insurers say the cuts are a necessary evil. Medicare Advantage has long been a highly profitable and steadily growing cash cow, but the landscape is changing, with Wall Street increasingly concerned about the profitability risks of participating in government programs.
Republicans have long positioned Medicare Advantage as a cost-saving alternative to traditional Medicare. However, in recent years, insurance companies have been accused of overpaying, and both parties have increased scrutiny of Medicare Advantage plans. The Biden administration has begun to implement cost controls. At the same time, medical costs have risen sharply, creating a “perfect storm” for insurance companies with reduced profits and higher costs.
