Challenges and Decline in Medicare Advantage Profitability: What’s Behind the Shift?

Medicare Advantage, the alternative to traditional Medicare that has been gaining popularity among consumers, is facing profitability challenges as insurers struggle with higher utilization of benefits and lower reimbursement rates from the government. Providers are also cutting ties with Medicare Advantage plans due to delays in prior authorization and claims payments.

The 3.7% rate increase for 2025 that Medicare Advantage plans will receive from the Centers for Medicare and Medicaid Services is considered inadequate by insurers, who are concerned about the impact on their ability to cover the costs of caring for beneficiaries. The benchmark rate reduction for 2025 is also adding to the financial strain on insurers.

Experts point to the increasing administrative burdens placed on health plans as a major factor in the declining profitability of Medicare Advantage. The plans are facing challenges in managing transportation, housing, and other health equity measures, which are driving up costs.

Despite these challenges, Medicare Advantage remains popular with seniors, with membership growing at a rate of 8% annually. However, studies show that Medicare Advantage plans cost the government more money than traditional fee-for-service Medicare.

Analysts suggest that Medicare Advantage may have “lost its luster,” as evidenced by Cigna’s decision to sell its MA business. The program’s success may be contributing to its own downfall, as more consumers enroll in MA plans, leading to changes in demographics and increased financial pressures on insurers.

While Medicare Advantage faces growing pains, experts believe it will remain viable and continue to grow. Providers, insurers, and CMS will need to adapt to the changing landscape of Medicare Advantage to ensure its sustainability in the future.