Medicare Advantage Customers Face Shrinking Pool of Insurers

Medicare Advantage customers should explore alternative coverage options before their plan is dropped

Medicare Advantage plans have been successful in enrolling Medicare beneficiaries and delivering to those clients. Despite this, some insurers are downsizing their share of the market and hospitals are canceling or not renewing their contracts to serve plan members – leaving enrollees in the lurch.

In recent months, Humana, CVS and some smaller insurers announced plans to pull out of unprofitable markets and reduce service in others, so those Medicare Advantage customers have to find another plan or return to Original Medicare. UnitedHealthcare, the largest insurer, is the outlier with no plans to reduce current or new enrollments.

Why is this happening – and what can enrollees do if they’re impacted by a loss of coverage?

Medicare Advantage covers a large spread of people

In 2024, 32.8 million people are enrolled in a Medicare Advantage plan, accounting for more than half, or 54%, of the eligible Medicare population, and $462 billion (or 54%) of total federal Medicare spending, according to KFF, the health policy researcher. Medicare Advantage enrollment jumped from 19% in 2007 to 54% in 2024.

Medicare Advantage, also known as Medicare Part C, is a form of managed care. Unlike original Medicare, which is administered by the federal government, Medicare Advantage plans are private health insurance. These preferred provider or health maintenance organization plans restrict patients to in-network physicians and hospitals. Most Advantage plans bundle Part A, Part B and Part D, which is for prescription drugs, together. Original Medicare beneficiaries must buy three separate plans for Part B, Part D and Medigap for similar coverage.

A recent survey from JD Power showed that Medicare Advantage subscribers were more satisfied with their insurance than those with employer-provided commercial insurance. Although local plans ranked lower in the overall satisfaction ratings, they had higher customer service ratings than national providers such as UnitedHealthcare and Humana which have nearly half (47%) of all Medicare Advantage enrollees nationwide, according to KFF.

So why are Medicare Advantage customers facing fewer options?

Insurers are planning to reduce enrollments

The long story short is that hospitals claim reimbursements are too low to cover costs and insurers say they’re seeing profit margins shrink.

CVS Health Aetna and Humana are the largest providers to state their intentions to shrink their share of the Medicare Advantage market, citing cost concerns and shrinking profits. CVS CFO Tom Cowhey said at an investment banking conference in May, according to STAT, that the company could “lose up to 10% of our existing Medicare members next year” as the company focuses on “margin over membership.”

Humana CFO Susan Diamond, meanwhile, indicated in a July call with investors that the company expects to lose about 5% of its 6.1 million Medicare Advantage members next year after it exits unprofitable markets and trims its plan options, according to Modern Healthcare.

CVS is the third-largest MA insurer, and dropping 10% of its enrollees would force 420,000 members to find other coverage. If Humana cuts 5% of its enrollment, another 305,000 Medicare Advantage customers would lose coverage.

Additionally, Centene Corp announced in early August it was ending its Medicare Advantage plans in at least six states this year as the company faces cost pressures. Across the country, approximately 4% of Medicare Advantage beneficiaries have a Centene plan, according to KFF.  Newsweek reported the market exit will impact roughly 37,000 Medicare Advantage members. Vermont will be hardest hit, as Centene previously had control of 9% of the market. Reduced services will also affect customers in Alabama, Massachusetts, New Hampshire, Rhode Island and New Mexico.

Insurers have experienced years of growth into new markets, and that era of expansion is largely over, Raymond James analyst Chris Meekins told Axios in April.

“Now, we’re not having as much of a conversation about making the pie bigger,” Meekins said. “We’re talking about how the pie gets divvied up.”

Reduced profits are leading to reduced options for MA enrollees

Every year, the Centers for Medicare & Medicaid Services (CMS) issues an updated annual capitation rate for each Medicare Advantage payment area for the next calendar year. Capitation is industry jargon for a way of paying healthcare providers or organizations in which they receive an upfront, set amount of money to cover the predicted cost of all or some of the healthcare services for a specific patient over a certain period. The most recent payment schedule was widely seen as not keeping up with costs.

CMS finalized a slight decrease in Medicare Advantage (MA) benchmark payments for 2025. Along with decreasing payment rates for 2025, the CMS has revised how plans adjust for members’ risk and how quality or “star” ratings are calculated in the program. All have major ramifications on insurers’ ability to extract profits from MA.

“The funding level was broadly consistent with our expectation, which we do not believe is sufficient to cover current medical cost trends,” CVS Health CEO Karen Lynch said during an earnings call in February.

In an April call with investors, Humana executives said it will look to pull back benefits and exit some markets as CMS continues phasing in risk adjustment changes. “We expect benefit levels, plan stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address the current medical cost trend environment and regulatory changes,” then-CEO Bruce Broussard said.

Medicare Advantage beneficiaries could see their supplemental benefits reduced or cost-sharing increase by $33 a month on average in 2025, according to an analysis from the Berkeley Research Group. This average cut varies by state, with beneficiaries in Nevada seeing an estimated $90 per month reduction in benefits, while beneficiaries in Wyoming will pick up an estimated $34 in additional benefits per month.

What can current Medicare Advantage subscribers do?

If your plan is ending, you should get a letter in early October explaining that it will no longer be available next year. However, your plan is still responsible for providing coverage for the remainder of the year and you should retain coverage until December 31.

If you do not make any changes by December 31, you will be automatically enrolled in Original Medicare as of January 1, but you still have until the end of February to make health and drug coverage changes.

You have two opportunities to enroll in a new plan if your plan is ending at the close of the year. You can choose a new MA plan during the general Open Enrollment period that occurs each year from October 15 through December 7. Any change you make during Open Enrollment will take effect January 1.

Because your plan is ending, you are also eligible for a Special Enrollment Period from December 8 through February 28 to change your Medicare health and drug coverage. Any changes you make from December 8 through December 31 take effect January 1.

Advantage plan members who enroll or default into an Original Medicare plan should consider buying additional coverage to cover the costs Original Medicare doesn’t pick up. Part D prescription drug coverage is stand-alone prescription drug coverage through private insurers.

Medigap (Medicare Supplement Insurance) is extra insurance you can buy from a private health insurance company to help pay your share of out-of-pocket costs in Original Medicare. However, Advantage plan members who switch to Original Medicare and want a Medigap plan will face underwriting.

Don’t take the set-it-and-forget-it approach to Medicare Open Enrollment this year. Even if you are happy with your plan, staying current about the other options in your market will prepare you to react to any unexpected changes to your coverage.

For additional assistance with your Medicare coverage or for a referral to an insurance agent, contact a certified elder law attorney(*), such as Linda Strohschein and her team at Strohschein Law Group.  To set up an appointment, contact Strohschein Law Group at 630-300-0627.

This information provided by Strohschein Law Group is general in nature and is not intended to be legal advice, nor does it constitute a legal relationship.  Please consult an attorney for advice regarding your individual situation.

(*) The Supreme Court of Illinois does not recognize certifications of specialties in the practice of law and the CELA designation is not a requirement to practice law in Illinois.

Article Provided by Donna LeValley of Kiplinger Personal Finance