Emerging Risks to the Medicare Advantage Market

3 minute
Medicare carousel

Medicare Advantage (MA) has been a tremendous growth story in recent years. Approximately half of Medicare beneficiaries opted for MA in 2022—a proportion that is projected to grow to 60% of Medicare beneficiaries in 2030. Health plans (as well as providers and vendors) have responded accordingly, with several health plans tying their enterprise strategy and investments to growing their MA business and relevant capabilities. Clearly, we have come a long way from the early post-Affordable Care Act years when legislated MA rate cuts worried some industry observers about the sustainability of the MA market.

Today, however, new risks are emerging that could stall and perhaps even reverse the growth strides health plans have made in the MA market. We see risks emerging from two highly influential sets of stakeholders: health systems/providers and regulators.

Health systems are increasingly concerned by the challenging economics of caring for their MA patient population versus their traditional Medicare patient population. While direct fee-for-service rates for MA and traditional Medicare are in a close range of each other, the net margin is lower for the MA patient population. Health systems believe this disparity is driven by a multitude of factors, including:

  • Aggressive utilization management and claims processing mechanisms driving post-service claims denials and site of care downgrades, leading to much lower net payments than expected based on actual care provided. Sometimes, these challenges are perceived to be exacerbated by inartful uses of Artificial Intelligence (AI) techniques in utilization management.
  • Some health systems are finding their length of stay can be much higher with MA patients than traditional Medicare patients. This is often attributed to challenges with discharges – driven by inefficient discharge processes/interactions with MA plans as well as challenges in securing appropriate post-discharge care if the MA plan’s post-acute care network is limited.
  • Difficult day-to-day operational/service experience with health plans in areas like prior authorization and appealing claims denials and downgrades that exacerbates the issues noted above and makes it extremely challenging for health system team members to productively engage their payer counterparts and resolve issues. Often, health systems feel they can’t get a response to their issues in a reasonable timeframe. As a health system leader once told me about one of their leading payers, “We can’t even get ahold of them….We may have to sue them just to get a response.”

Health systems are considering a range of responses to these challenges. Some are demanding higher reimbursement rates to make up for the net margin hit; others are considering whether they should partner more selectively with a smaller set of payers that are genuinely committed to a productive and mutually beneficial partnership and go out-of-network with all other payers. In-network participation of health systems has been a key driver in growing MA in several markets by giving seniors the assurance of access to trusted care providers when choosing an MA plan. Reversal of network participation risks having the opposite effect of moving seniors back into traditional Medicare.

The concerns of health systems are getting on the radar of regulators and legislators. Already, in its 2024 MA and Part D Final Rule, the Centers for Medicare & Medicaid Services (CMS) has taken steps “to ensure people with MA receive access to the same medically necessary care they would receive in Traditional Medicare.” A majority of states are also in various stages of considering legislation to address prior authorization challenges across lines of business. MA risk adjustment is another area under intense scrutiny, with some actions already taken as part of the CMS Risk Adjustment Data Validation Final Rule.

Taken together, the concerns of health systems and regulators can result in serious risks to the future of the MA market. This is particularly worrisome as health systems and providers can be highly influential in members’ plan choices and critical enablers of MA plan success in key areas like risk adjustment, Star ratings, and cost of care management. As such, plans with preferential provider partnerships are more likely to thrive in the future. So, what can health plans do to address these emerging risks? We believe health plans need to adopt three essential strategies for the future:

  • Build trust in the MA business model. Address perceptions that a profitable MA plan business model depends on aggressive utilization management and claims processing. While some utilization management may be necessary to manage overuse and misuse of care, a reasonable provider should feel it is conducted in a fair, transparent, and operationally streamlined manner. Providers should also feel assured that the wide range of supplemental benefits offered by MA plans to attract members are not coming at the cost of their operating margins and being paid for by aggressive utilization management and claims processing. Plans should think broadly about how they can build trust with providers, including highlighting proven successes in improving quality of care for MA members.
  • Become a better operating partner for providers. Building on and furthering the idea of trust, health plans need to rethink their entire model of operational interactions with providers. For example, health plans sometimes negotiate contracts with providers where some payment-related factors are included in the plan’s provider manual instead of in the contract directly. As things change in the provider manual, the changes can be hard for providers to track and stay on top of, resulting in effectively reduced payments. Health plans need to reimagine the experience they want partnering providers to have, and make people, process, and technology capability investments accordingly.
  • Make a bigger push on the fundamentals of managing total cost of care. As risk adjustment revenue opportunities and utilization management practices come under scrutiny, it will be imperative for MA plans to find new sources of value creation and margin improvement. We believe MA plans will need to double down on managing total cost of care as the next frontier of value creation. While most plans already have initiatives in this area, the next stage would likely involve focusing more deeply on root causes in and out of the healthcare system, and designing and implementing care, payment, and partnership models, with aligned product designs that address these root causes. Strong relationships with providers will be critical to making progress in this area.

MA plans have been highly successful in building a large, vibrant, and growing business. Proactively addressing concerns from health systems and other partners will be critical to keep the growth story going.

The author would like to thank Sarah Wiley, Webster Macomber, and Brian Ball for their valuable comments and insights on this article.

Similar Resources