The Future of Medicare Advantage

The undeniable story of early 2024 for US health insurers has been the sustained economic pressures that Medicare Advantage (MA) payers are experiencing. This was borne out in 2023 year-end financial results, with several MA payers pointing to inpatient and outpatient care utilization being higher than expected, consequently increasing the medical-loss ratio.

Looking ahead, the financial pressure on payers could worsen. In its 2025 advance notice for new payment rates, the US Centers for Medicare & Medicaid Services (CMS) notes that there will be an aggregate revenue growth (3.7 percent)1 when the increase (3.86 percent) driven by the risk score trend is included. Payers’ estimates of this number, however, vary widely.

Taken together, these headwinds only exacerbate the imperative for MA payers to contain costs. Savings will need to come from both medical costs and value-based care, as well as administrative expenses and product design changes. Yet none of this lessens the need to invest sufficiently to achieve growth expectations and Star-rating aspirations.

Higher utilization in 2023 was likely spurred by delayed care caused by the COVID-19 pandemic and other acute triggers in excess of historical trends. As the extent and longevity of these acute triggers are uncertain, payers can continue to monitor the research. But in the longer term, they can also continue to focus on how the aging of the Medicare population is likely to continue driving utilization, indicating that this could be a new normal. Similarly, some other seemingly gradual changes could nonetheless be disruptive this year.

Besides planning for demographic shifts, payers will need to navigate changes to Star ratings and rethink product designs and distribution channels. All of these factors are expected to complicate growth and revenue. As we consider the decisions that payers will need to contemplate, five key trends are coming into clear focus for the year ahead: the need for a product reset, an aging population, Star-rating pressures, opportunities in special needs plans (SNPs), and broker channel constraints.

Product reset

The cost-containment imperative for MA payers means that a focus on ROI in product design is already emerging as an undercurrent in 2024 and is expected to be a priority in the 2025 bid cycle. Regulatory changes are putting pressure on top-line revenue and may seemingly warrant retrenchment, but instead we suggest that payers make calculated trade-offs and reevaluate their portfolios. In recent years, with more cash on hand, the focus has been on increasing product richness—for example, through new and more generous benefits, increasingly in cash and cash-equivalent forms—to drive growth.

However, as CMS starts to ask more questions on benefit utilization to assess efficiencies,2 we expect to see a more triangulated focus on designing benefits for not just growth but also retention (for example, ease of use and vendor stability) and member outcomes (for example, proactive engagement in seeking care and flex card allowance focused on medical coverage rather than broader retail access). Even with possible new reporting requirements and nascent recommendations regarding standardization, supplemental benefits are expected to go from being nice to have to an offering that provides meaningful strategic upside. With the number of plan options increasing every year, the market may have reached a saturation point, leading to benefit designs that evolve from a buffet to a curated menu.

Payers were clearly grappling with these choices in the 2024 pricing cycle. Some pulled back in select markets and aligned investment to risk-bearing providers, whereas others employed a broader stance to deliver richness across markets in pursuit of a nationwide approach to membership.3 In 2024 and beyond, payers may see more value in having a concise narrative for distribution partners and beneficiaries rather than the “all things to all people” approach of recent years.

A critical question for this year is whether the market has reached a tipping point in benefit generosity focused on growth and will shift to an environment in which payers are more intentional about ROI through member retention and improved health.

Aging population

Nearly half of the MA-eligible population will be aged 75 or older by 2030, up from roughly 40 percent at the present time.4 This increase, along with labor-shortage concerns, has triggered rising qualms about a potential crisis in eldercare. Healthcare worker vacancies reached 710,000 in May 2023, and the educational pipeline indicates that the gap is likely to expand in the next decade. This makes 2024 a pivotal year to put in place solutions to rebuild the depleted workforce of doctors, nurses, certified nursing assistants, home health aides, nursing home workers, and other integral supporters of eldercare.

Besides the foundational solutions needed to address workforce challenges, we expect to see a shift toward next-generation care models to better help the higher-need aging population access the right care at the right time at the right cost. These models often use technology and data to personalize care through, for example, wearables, remote monitoring, telehealth, and sophisticated data platforms. This responsibility falls heavily on payers—not only those that already own many of these services, but also those that shoulder the responsibility of engaging members to navigate this complex web.

Of crucial concern are whether the emerging crisis will prompt those payers that aren’t already vertically integrated to begin down this path, whether it will encourage those that are vertically integrated to continue with M&A and investments in healthcare delivery, and if the next decade of investment will vary from the primary care–centric investments to date.

Star-rating pressures

Another year brings another set of changes to Star ratings for payers to adapt to. For one, implementation of Tukey method guardrails for rating year 2024 will raise the bar on the Star program. The new provision nixes performance outliers from calculations, which in turn contributes to more challenging cut points. Also in the current rating cycle, plans will face the deweighting of member experience measures, which will place relatively more emphasis on clinical and pharmacy metrics.5 Payers will need to focus on member and provider engagement through both omnichannel outreach and an on-the-ground presence, an area that has traditionally seen lower investment. And it could well be that clinical and pharmacy metrics, even when properly collected, won’t affect Star ratings as positively as member experience measures have.

Looking ahead, another important change to the Star program is that a health equity index will replace the reward factor, which benefited plans with high and consistent performance across various measures. The index, though, will do more for plans with high performance on a subset of measures for their low-income-subsidy, dual-eligible, and disabled populations. For payers with fewer of these members or less experience in serving these populations, building out these capabilities will be a multiyear effort. We expect to see payers invest in these populations through both traditional care and addressing social determinants of health.

A vital matter is whether payers can adjust to the new guidelines and reverse the downward trend in Star ratings over the past couple of years.

Opportunities in SNPs

The market for SNPs, driven by both demographic and regulatory trends, will continue to be an area of increased focus. As top-line MA population growth begins to slow, payers are continuing to seek out pockets of growth, and chronic-condition SNPs may be an emerging opportunity. They grew faster in last year’s enrollment period than dual-eligible SNPs (D-SNPs) did for the top three payers.

D-SNPs, however, remain the largest of the SNPs. Recent years have seen substantial growth in their population, with payer entry and investment to match. This isn’t lost on state governments. While not a nationwide phenomenon, more states continue to move into highly integrated and fully integrated models for the D-SNPs. New models are expected in 2026 for Illinois, Michigan, and Rhode Island, and many more states are likely to be close behind. Recent surveys point to 17 additional states that are considering pursuing new D-SNP contracting strategies.6

McKinsey analysis indicates that while MA should remain a high-growth profit pool overall, the dual-eligible cohort is expected to see EBITDA increase by more than 10 percent by 2027.7 This means that payers are now grappling with the increasing imperative to invest further in Medicaid capabilities and partnerships, including through connecting with community partners and social organizations, to remain viable in this market.

A central issue is whether payers will make the needed proactive moves to prepare—whether the state they work within forces it or not—to build the capabilities necessary to remain viable for the D-SNP population.

Broker channel constraints

Payers and brokers have been abuzz since CMS’s November 2023 announcement “proposing to redefine ‘compensation’ to set a clear, fixed amount that agents and brokers can be paid regardless of the plan the beneficiary enrolls in.”8 With customer acquisition costs widely pushing north of $2,000 across the country, these compensation caps could—if implemented as proposed—have a meaningful impact on the financial solvency of the largest field-marketing organizations and brokerages.9

Although the compensation cap won’t affect those naturally aging into Medicare from commercial plans, it will affect other groups, as brokers have developed superior marketing and sales capabilities for them. To date, payers have used broker channels for their efficiency and high-volume capabilities, but the expected pressure on the broker business raises questions of sustainability and competitiveness.

A fundamental query is whether the new compensation caps will be a forcing mechanism for payers to bring more distribution into internal systems by enhancing and scaling their own marketing and sales capabilities.


Although 2024 has just begun, we already see some MA payers adjusting their outlook for the rest of the year. The sustained increase in utilization is only adding upward pressure on cost structures, while the CMS 2025 advance notice is putting downward pressure on revenue. We expect that the trends discussed in this article will deepen disruptions for MA payers. The next few months and the next round of financial results will be telling about which payers have anticipated these changes successfully, setting them up for success for years to come.


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