CMS Cuts Medicare Advantage Rates, Payers Stocks Plummet

CMS announced it will continue with its 0.16% rate cut for Medicare Advantage plans insurers.

The Medicare Advantage rate cut proposed in January is here to stay, and payers are not happy.

CMS announced the finalization of the 0.16% rate decrease on Monday, to the disappointment of payers and their investors.

Insurer stocks immediately began to drop, with Humana seeing a nearly 10% drop, CVS Health dropping 5.9%, UnitedHealth decreasing by 4.5%, and Elevance dropping 4%. The stock performance plays into the growing concern amongst investors that Medicare Advantage will continuously face more regulatory and earnings pressure in the future.

With the new rate, next year Medicare Advantage payment cuts could drop by 1% per month per beneficiary, according to a study from the payer lobbying group Better Medicine Alliance, which represents payers in Medicare.

What does it all mean?

Medicare Advantage has seen an unusual rise in medical costs recently, with higher utilization to blame, and insurers are arguing the CMS did not factor in these rising costs that plans are facing when it calculated the new rate. Some payers are arguing that the new rate will hurt seniors, who have been responsible for the higher utilization rates that Medicare Advantage has been seeing.

Medicare Advantage has been a hot topic as of late, with several factors shaking up the market and feelings of uncertainty about how the market will perform in 2024 and 2025. The Biden Administration’s crackdown on upcoding practices is one factor that slowed the original excitement and popularity around Medicare Advantage.

Just last week HealthLeaders reported on the strength of the Medicare Advantage market, with a Chartis study revealing strong potential and stability as enrollment grows. The growth comes on the heels of a big Medicare Advantage milestone: over 50% of Medicare-eligible persons enrolling in a Medicare Advantage plan. With these factors, the optimism of insurance executives prevails.

Other influential factors include an aging population that will most likely continue the high utilization rates. Procedures like knee and hip replacements for seniors are two of the main operation utilizations that are seeing an uptick. Tougher star ratings have also played into the Medicare Advantage payer landscape, with many seeing a decrease in their ratings. Broker constraints and opportunities in special needs plans may also have some effect on payers in the MA space.

Payers may be in a rush to exit the Medicare Advantage market as they see its profitability declining, but this may not take place immediately. Medicare Advantage is still a massive part of the health insurance market that stands to continue profitability if payers can pivot their strategies, get creative with existing opportunities, and play with a straightforward hand.