MA Cuts Will Hurt These Smaller Groups, Not Big Payers

The new rate cut will have a strong impact, but not on big payers.

Just about every insurer is up in arms over the new Medicare Advantage rate cuts.

To recap: MA plans will see a base rate cut of 0.16% in 2025 since risk scores are expected to be 3.86%. The expected average change in revenue will be 3.7%, and CMS notes that “this is an increase of over $16 billion in 2025 compared to 2024 in expected MA payments.”

However, this rate cut isn’t going to be a huge blow to big payers. Yes, we saw their stocks take a dive when it was announced, but it won’t be detrimental to their business.

MA insurers started the 2023 year financially stable, even considering the uptick in utilization late in the year. The giants still showed strong profits in the billions: Humana at $2.5 billion, Cigna at $5.2 billion, UnitedHealth at $22.4 billion, Elevance at $6 billion, Centene at $2.7 billion, CVS (Aetna) at $8.3 billion…you get the picture. 

The rate cut is still a big deal. It's the biggest change in Medicare since Medicare Choice was included in the Balanced Budget Act of 1997, which reformed Medicare payments by extending per-case payment methods to all categories of post-acute care.

Pressure for small insurers

It will be a bigger deal for smaller insurers. Industry expert Paul Keckley dives into who will be most affected by this MA change in his Keckley Report. A few groups he says will feel the brunt of the change are:

Smaller Medicare Advantage sponsors and their lobbying groups will take a hit after trying their best to defeat this rule and members will pay dues for the results.

Hospitals and physicians will feel the effect of this rule in the form of reimbursement cuts to care providers, especially smaller and rural health systems with large MA enrollment.

MA brokers, agents and marketing companies may feel a hit to their profits from constraints of MA marketing tactics and member transparency protections. These could reduce revenue for third-party marketing organizations that sell their services to these plans. Keckley says that a shakeout is likely.

MA enrollees may see fewer plan options and higher premiums, thickening the barrier to access affordable healthcare. Although the ruling adds benefits for behavioral health and data privacy protections, it most likely won’t outweigh the stiffening premiums and fewer plan options. Keckley says that while big MA plans will be hurt but will adapt, while small plans will be left in the dust.

Supplemental service providers will see lower payments from CMS and may be forced to reduce or eliminate supplemental benefits that aren’t as important to members. Keckley surmises that benefits like fitness programs may be cut, but dental and prescription drug benefits appear to be safe.

Lastly, the 2024 Presidential campaign is happening right alongside this MA change and Keckley says that he has no doubt the campaigns “will opine to Medicare security in their closing rhetoric recognizing MA covers more than half its enrollees.” MA insurers will submit their new plans to CMS by June 3 and open enrollment begins in October, a month before the nation votes for the next president.

Overall, this MA rule will affect all plans in one way or another, whether it’s day to day operations, heightening friction with providers or reimbursement negotiations, Keckley concludes in his report that MA is simply a work in progress.