CMS payment model changes, rising costs and higher utilization. In addition to these Medicare Advantage (MA) stories, which have dominated 2024, the past few weeks have been a cornucopia of new headlines. Their alternate versions might read:
- When stock value trumps vision. The ouster of CEO Karen Lynch at CVS Health, the possible break-up of its business units, and how that could affect Aetna.
- Will they or won’t they? The Cigna-Humana deal appears back on the table. Since merger rumors swirled last year, Cigna’s stock price has boomed while Humana’s continues to drop.
- The government business give and take. While the MA picture looks positive for Elevance Health, its stock price recently took a dive due to “unprecedented” challenges from its Medicaid business.
- The best $3.3 billion they ever spent. In January, HCSC signed a definitive agreement to acquire Cigna’s Medicare business (MA, Med-Supp, Part D and CareAllies). The deal is set to close Q1 2025 and will then be in regulators’ hands.
- Medicare = Medicare Advantage = United HealthCare? If 54% of Medicare beneficiaries are enrolled in MA, and nearly 30% of that number is in the hands of a single private payer (UnitedHealthcare), what exactly is in the cards for Medicare, this “government” program?
AEP will curate these headlines further. In the meantime, HealthLeaders got a sneak peek from Kaiser Family Foundation (KFF) and its Associate Director-Program on Medicare Policy, Jeannie Fuglesten Biniek.
The conversation starts with a look-back to CMS’s risk adjustment changes. It ends with the one MA plan type that’s not only weathering market changes but growing in spite of them — and why that could be a problem.
The impact of the MA payment formula updates
Annually, CMS recalibrates its MA payment models through the lens of new data (e.g., how much it costs to treat diabetes now versus a few years ago, and for original Medicare beneficiaries compared to MA members).
Occasionally, those changes are much bigger and deserve the attention they get — representing changes CMS can make without involvement from Congress and because of their impact on health plan financials.
“Every couple of years, CMS updates these models in a more significant way, updating the actual payment formulas, including for associated disease categories,” notes Fuglesten Biniek. “This is so health plans don’t just pick healthy people who cost less as members. The plans get higher payments for people who are sicker.”
With its April 2024 payment rule update, CMS changed the algorithm that assigns diagnostic codes to address coding variability across MA payers. Depending on new data and analysis — including demographics like age and gender — payments for conditions like heart disease might be higher or lower (overall and compared to MA).
“This variability is less about changes in the conditions themselves and more about how plans code, are paid by CMS, and thus pay providers.”
Coding manipulation to increase reimbursement from CMS is a private payer strategy. There is an entire sub-industry dedicated to helping health plans “upcode,” which Fuglesten Biniek describes as plans receiving “higher payments than are justified and from a payment system that is set up to incentivize this because CMS pays more for people who are sicker.”
Under pressure, stable or mixed?
About the payment formula changes, Fuglesten Biniek comments that “CMS could have gone further with its adjustments and is also phasing these changes in over three years to minimize impact.”
You could have fooled MA payers. For much of 2024, the sky has been falling due to the aforementioned headwinds. Plans have sounded the alarm all year that there would be MA market impacts, and there have been — or as the new Milliman analysis put it: “Fewer plans, fewer carriers, and significant uptick in plan terminations.”
Milliman recapped AEP 2025, noting that:
- CVS and Centene “were drivers of the plan offering decreases, both cutting over 60 plans from their overall offerings.”
- Service area reductions also increased, again led by CVS (24%) and Humana (55%).
- Cigna and Aetna also made significant market exits.
- Six carriers exited the MA market entirely: Premera Blue Cross, Blue Cross and Blue Shield of Kansas City, Health Partners Unity Point Health, Care N’ Care, Moda Partners, and Western Health Advantage.
- Premium and deductible changes are mixed, with some plans increasing one or both and others decreasing.
On the other hand, KFF notes a relatively stable market in its 2025 preview, with Fuglesten Biniek adding for HealthLeaders: “We’re still digging into 2025, but initial indications are that…exits seem mixed.”
Meanwhile, one MA plan type is doing just fine
Since the end of 2023, industry-watchers have suggested that the Medicare “Gold Rush” is slowing down. While the CBO projects that MA penetration will reach 57% in 2025 and 64% by 2030, the percentage of individual and employer/union-sponsored group plans in the MA market has been slowing.
In fact, KFF notes that “individual plans have declined as a share of total Medicare Advantage enrollment since 2010 (71%).”
Meanwhile, enrollment in Special Needs Plans (SNP) has more than doubled since 2019, from 2.92 million to 6.64 million in 2024. SNPs “restrict enrollment to specific types of beneficiaries with significant or relatively specialized care needs.” They include plans for those with chronic illness (C-SNP), who live in nursing homes or institutions (I-SNP), and those dually eligible for both Medicare and Medicaid (D-SNP).
While this is still a small percentage of overall MA enrollment, it is more than significant.
KFF adds that SNP enrollment increased by 16% alone between 2023 and 2024, and now accounts for 20% of MA enrollment overall. D-SNPs are driving this growth. In 2010, MA dual-eligible enrollment was just over 11%; in 2024, it was 29%.
The speed with which SNPs are growing leads us to one of Medicare Advantage’s biggest hidden headlines: A vulnerable population in the hands of an increasingly smaller number of dominant insurers as market pressures force others to the sidelines or entirely out.
HealthLeaders will explore this subject in our Medicare Advantage analysis.