10 key questions facing Medicare Advantage

Medicare Advantage is the dominant form of Medicare, and questions loom for payers, providers and policymakers alike in the year ahead. 

Enrollment in the program has doubled in the last 10 years, and over half of Medicare beneficiaries are enrolled in an MA plan in 2024. At the same time, a number of headwinds are converging on MA this year. 

The public-private partnership is a major income generator for insurers, but as CMS tightens reimbursements, and audits and medical costs rise, it may not be the cash cow it once was. On top of this, many hospitals are fed up with Medicare Advantage. Several hospital executives have spoken out against delayed and denied payments from Medicare Advantage insurers, and some have even gone as far as to tell their patients to avoid the plans altogether. 

Still, the program is as popular as it's ever been among beneficiaries. How the future shapes up for Medicare Advantage — and Medicare as a whole — depends on how providers, insurers and lawmakers act on key issues facing the program. 

Here are 10 key questions for the future of Medicare Advantage: 

1. How long will hospitals put up with denied payments?

A growing chorus of hospital leaders have criticized Medicare Advantage plans, often citing problems with denied care and delayed payments. 

In September 2023, San Diego-based Scripps Health dropped all Medicare Advantage contracts, a move affecting 30,000 older adults. Scripps is one of the largest health systems to stop doing business with MA entirely. 

"It's become a game of delay, deny and not pay,'' Scripps Health CEO Chris Van Gorder previously told Becker's. "Providers are going to have to get out of full-risk capitation because it just doesn't work — we're the bottom of the food chain, and the food chain is not being fed." 

In the second half of 2023, at least 15 hospitals and health systems moved to drop some or all Medicare Advantage plans. Though a small portion of hospitals are done with MA altogether, many others are raising complaints, saying payment delays and denials from the plans are getting worse. 

A survey published in April by the Healthcare Financial Management Association and Eliciting Insights found 62% of hospitals CFOs surveyed said collecting payments from MA plans is "significantly more difficult" than it was 2 years ago. 

2. What other options do hospitals have? 

While a few hospitals are dropping the program, Medicare Advantage enrollees now account for more than half of Medicare beneficiaries — meaning it's not feasible for most hospitals to cut ties with MA completely. Rates of Medicare Advantage enrollment vary widely by county and state, but for many hospitals, going out-of-network with all MA plans would mean losing a significant portion of patients. 

Bristol (Conn.) Health CEO Kurt Barwis said delayed payments from Medicare Advantage plans were a major factor behind the system's workforce reduction. In March, Bristol Health announced it would cut 60 positions across departments, 21 of which were occupied. Over 60% of the system's Medicare patients are enrolled in MA, Mr. Barwis told Becker's, making it clear that dropping MA plans is not on the table.

"The reason it's not an option is I have an older community, and they need care," Mr. Barwis said. "If you look at the rules, and the disruption it would cause in the community, I'm not sure I can face the community if I was to use that as one of my approaches."  

Hospitals have tried other approaches to address their Medicare Advantage pain points without cutting ties with plans completely. Some have opted to pare down the number of insurers they contract with to the ones that best align with their financial goals. 

Will Bryant, CFO of Chapel Hill, N.C.-based UNC Health told Becker's the system will pick a few Medicare Advantage payers to work with moving forward, prioritizing "the partners who act like partners" and do not "deny care in order to bolster their billions of dollars of quarterly earnings." He said he expects many other health systems to do the same.

Some hospitals are opting to create their own Medicare Advantage plans. Morgantown, W.Va.-based WVU Medicine is a majority owner of Peak Advantage, a health plan that launched in 2021 with two other West Virginia health systems as co-owners and expanded into Medicare Advantage at the start of 2024. 

WVU Medicine launched Peak Medicine in 2021, and began offering plans to its employees in 2023. It expanded to Medicare Advantage at the beginning of 2024. 

Albert Wright Jr., president and CEO of West Virginia University Health System, told Becker's that ownership of the plan has resulted in a "true mindset change" for the organization. 

"You start to think about everything you do as both the payer, provider," Mr. Wright said. 

Peak Health should feel like the easiest Medicare Advantage plan for WVU physicians to work with, Mr. Wright said. The system has not dropped any external Medicare Advantage plans, but may pare back the number of plans it works with over time. 

"We probably want to work with three or four that we have good, agreed-upon relationships with," Mr. Wright said.

3. What is the future of prior authorization? 

As complaints about delayed and denied Medicare Advantage payments intensify, CMS has taken action on prior authorization.

In 2021, more than 35 million prior authorization requests were submitted on behalf of MA enrollees, according to KFF. Rates of prior authorization requests vary widely between insurers, from 2.9 requests per enrollees in Anthem plans, to 0.8 requests per enrollees in Kaiser Permanente plans. On average, 11% of prior authorization requests were denied by MA plans in 2023. 

New regulations took effect at the start of 2024, clarifying MA plans must follow coverage guidelines set by traditional Medicare. If there are not clear guidelines for services covered by traditional Medicare, MA plans can develop their own internal guidelines, based on widely used clinical guidelines, that must be publicly accessible. The rule also prevents plans from imposing any prior authorization requirements in the first 90 days a member is enrolled.

In alignment with these regulations, CMS took further action in February and issued guidance to Medicare Advantage plans around the use of AI and prior authorization. MA plans can use algorithms to support coverage decisions, but any algorithm or AI-based tool must be compliant with the agency's coverage decision requirements. Algorithms can be used only to help predict length of stay for post-acute services and not as the basis for terminating coverage, CMS said. 

The guidance follows controversy and questions about the adoption of AI in health insurance decision-making. In 2023, three major insurers — UnitedHealthcare, Humana and Cigna — faced lawsuits alleging they used AI or automated algorithms to wrongfully deny members care. At the time of this article's publication, the lawsuits are ongoing. Some lawmakers have expressed concern CMS's guidance around AI does not go far enough. 

Even after enactment of the new prior authorization regulations at the start of 2024, hospitals have asked CMS to do more with health insurers that make it less cumbersome to collect payment for services. In March, over 100 hospitals and health systems signed onto a letter asking the agency to do more on Medicare Advantage denials. The providers requested CMS collect more data on claims denied by Medicare Advantage plans and take enforcement action against plans not following the coverage rules set out by Medicare. The systems also asked CMS to bar MA plans from delaying or denying claims approved through electronic prior authorization. 

4. How will the two-midnight rule shake up hospitals' relationship with MA?

New regulations took effect at the beginning of 2024 that could increase the reimbursement hospitals receive from MA plans, but present challenges for how hospitals document inpatient care. 

The rule specifies plans must provide coverage for an inpatient admission when the admitting physician expects the patient to require hospital care for at least two midnights. The rule means hospitals need to up their documentation of patient stays, Ronald Hirsch, MD, vice president of regulations and education group at R1 Physician Advisory Services, told Becker's in June. 

"MA plans are theoretically going to have to pay for a lot more inpatient admissions, so they're going to audit a lot more," Dr. Hirsch said. 

On an April 26 call with investors, HCA Healthcare CFO Bill Rutherford said the rule seems to be having a "moderate benefit" on the health system's inpatient volume. Other hospital executives have said the rule has had little effect on inpatient volumes or revenue. 

5. Has MA lost its luster for insurers? 

While hospitals' frustrations with MA grow, insurers are facing another set of challenges in the program, which no longer promises the same level of profitability it once did for for-profit insurers. 

In January, Moody's analysts wrote that the program "seems to be losing some of its luster." According to Moody's, earnings in Medicare Advantage shrunk by 2.1% from 2019 to 2022, despite premiums and membership growing by 40% in the same time period.  

In the second half of 2023 and early months of 2024, insurers warned of rapidly rising costs among the Medicare Advantage population, driven in part by pent-up demand from the COVID-19 pandemic. Humana, the second-largest Medicare Advantage insurer, reported a $541 million loss in the fourth quarter of 2023, driven by what executives called unprecedented increases in medical costs. 

With headwinds in the Medicare Advantage market, Moody's noted Elevance Health and Cigna, which have a smaller portion of their business in Medicare Advantage, are becoming more attractive to investors. Cigna finalized a deal to sell its Medicare Advantage business to Health Care Service Corp. for $3.3 billion in January. 

In May, CVS Health executives said they expected the MA business to lose money in 2024, and braced for a decline in members in 2025. Still, the company remains bullish on the long-term outlook for MA. 

"The current environment does not diminish our opportunities, our enthusiasm, or the long-term earnings power of our company," CVS Health CEO Karen Lynch said in May. "We are confident that we have a pathway to address our near-term Medicare Advantage challenges." 

6. Will MA benefits be cut back? 

Though some challenges around costs appeared to abate in the early months of 2024, insurers are also facing a tougher rate environment from CMS. In April, the agency finalized rules that would trim benchmark payments.

Benchmark payments are the amounts CMS pays MA plans per beneficiary. In addition to the cut, the agency is phasing-in risk-adjustment coding changes from 2024 to 2026. Insurers have argued the changes amount to a cut in payments for Medicare Advantage. 

In response to the government's rate changes, many major Medicare Advantage insurers have indicated they will cut supplemental benefits, increase premiums for Medicare Advantage beneficiaries, or pull back from certain markets to account for the tougher funding environment. Humana executives said in an April 24 call with investors that it is eyeing exiting certain markets in response to the CMS rates, for example. 

Scott Ellsworth, founder and president at Ellsworth Consulting, told Becker's that 2024 marks a turning point, in that older adults have seen benefits in MA get better every year until now.

"Now we're at an inflection point and the free lunch is over," he said. "There is going to be a sharing of the pain. Providers have disproportionately shared the pain, and now you're seeing many of them say, 'Enough is enough, we're out.'" 

7. Are supplemental benefits working? 

Virtually all Medicare Advantage plans offer hearing, vision and dental benefits — coverage not included in traditional Medicare, according to KFF. Many also offer over-the-counter drug benefits, meal support and reduced cost-sharing compared to traditional Medicare plans. 

While the offering of such benefits are widespread, utilization of them is less clear. CMS lacks data on how often supplemental benefits are used in the program, according to a 2023 report from the Government Accountability Office. In January, CMS issued a request for comments on improving transparency in the program, including greater data collection on supplemental benefit use. 

Supplemental benefits are one draw for beneficiaries to join MA. Medicare Advantage may also cost less than other coverage options. Given that nearly all traditional Medicare beneficiaries rely on supplemental coverage to address out-of-pocket expenses not covered by the traditional Medicare program, the appeal of MA's supplemental benefits and cost-effectiveness becomes increasingly apparent.

One proposed solution to problems plaguing Medicare Advantage is to make traditional Medicare benefits on par with MA, Don Berwick, MD, who served as CMS administrator during the Obama administration and is a current health policy lecturer at Harvard Medical School in Boston, told Becker's. 

The idea has gained and lost steam in Congress. Bipartisan legislation to add dental, vision and hearing benefits to original Medicare coverage was introduced in 2023, but stalled.

"It should be cost neutral to beneficiaries as to which they choose," Dr. Berwick said. "The money needed to improve traditional Medicare would be readily accessible by clawing back the excess subsidies that have accumulated for Medicare Advantage."

8. Can CMS curb overpayments? 

The government spends more on Medicare Advantage beneficiaries than comparable enrollees in fee-for-service Medicare, according to the Medicare Payment and Advisory Commission. 

Two factors account for this disparity, according to MedPAC, which advises the U.S. government on Medicare. The first is favorable selection. Medicare beneficiaries who use fewer healthcare services tend to self-select into MA plans. The second factor driving disparities is coding intensity. Medicare Advantage plans are paid based on beneficiaries' risk, so plans are incentivized to document more diagnoses in patients' records. 

In 2024, the federal government will spend $83 billion more on Medicare Advantage beneficiaries than if they were enrolled in fee-for-service Medicare, according to MedPAC. The commission also estimated MA will increase Medicare premium costs by $13 billion in 2024. 

Insurers decried MedPAC's estimate, which industry groups said did not account for differences between the fee-for-service and Medicare Advantage population. Mike Tuffin, CEO of industry group AHIP, said the estimates are based on "speculative assumptions" and "overlook basic facts about who Medicare Advantage serves and the value the program provides." 

MedPAC also estimates that coding intensity will be 20% higher in Medicare Advantage than in fee-for-service in 2024. 

An October 2022 report from The New York Times found nearly every major insurer has been accused of fraud by a whistleblower or by the federal government.

In addition to higher coding intensity, the federal government has investigated several payers for intentional upcoding — making patients appear sicker than they are on paper to receive more reimbursement from the government. 

In October 2023, Cigna agreed to pay $172.3 million to resolve allegations it violated the False Claims Act by submitting incorrect Medicare Advantage patient data to CMS to receive higher reimbursements. 

Other insurers, including UnitedHealthcare and Elevance Health have faced similar allegations. 

CMS is also toughening its audits of overpayments. In January 2023, the agency finalized a rule that will allow it to recoup more dollars from Medicare Advantage plans through audits. CMS estimates it could collect $650 million in clawbacks in the first three years the rule is in effect and $400 million each year after. The rule is being challenged in court. 

9. Does MA deliver better outcomes? 

Medicare Advantage has yet to deliver on yield savings for the government, and evidence is inconclusive as to whether the program is tied to superior outcomes and care. 

Medicare Advantage and traditional Medicare are mostly the same when it comes to outcomes, according to a 2022 literature review from KFF. Neither program consistently outperformed the other on quality outcomes across 62 studies reviewed. 

MA enrollees were more likely to report having a usual source of care and receive preventive wellness services. Traditional Medicare enrollees with supplemental coverage were the least likely to report cost-related problems, according to KFF, but traditional Medicare enrollees with no supplemental coverage were most likely to report an issue affording care. 

Medicare Advantage beneficiaries may spend less overall on their healthcare costs than their counterparts in traditional Medicare. Fee-for-service Medicare members spend about 7% more on average for healthcare compared to Medicare Advantage members, according to a 2023 study published by AHIP. 

10. What's the future of traditional Medicare?

Despite the challenges, Medicare Advantage is set to keep growing. 

The Medicare Advantage program has ballooned from 14 million enrollees in 2013 to 31 million in 2023. Continued growth of the program is expected, according to estimates from KFF. Six in 10 Medicare beneficiaries are expected to be enrolled in an MA plan by 2030. 

Medicare Advantage and traditional Medicare beneficiaries generally express high-levels of satisfaction with their care, with few major differences between the programs, according to KFF. 

If Medicare Advantage keeps growing, and beneficiaries remain satisfied with their coverage, what's the future outlook for traditional Medicare? 

CMS Administrator Chiquita Brooks-LaSure said it's "critical" that beneficiaries continue to have a choice between traditional Medicare and Medicare Advantage. 

Michael Chernew, PhD, chair of the Medicare Payment Advisory Commission, said although MA was not designed to be the dominant form of Medicare, its growth reflects the value beneficiaries are getting from the program. 

"That said, I think the trajectory of growing enrollment we're on is unstable, for a bunch of reasons that are sometimes mathematical, just the way that the benchmarks are set," Dr. Chernew said in January. 

MedPAC has proposed several policy items the commission says will slow spending in Medicare Advantage, including overhauling the way CMS calculates its payments to MA plans to make them closer to fee-for-service rates. 

One possibility is that, at this rate of enrollment, traditional Medicare could "be atrophied significantly," in the years ahead, Dr. Berwick told Becker's. In this scenario, only the patients most undesirable to MA insurers could be enrolled in traditional Medicare. 

"The benchmarks for Medicare Advantage are basically based on the expense pattern of traditional Medicare, so the whole financing calculation system is put in jeopardy by the dominance of Medicare Advantage," he said. "I would like to see Medicare Advantage slowed or stopped right now, or at least forced to have better carriers." 

Laura Dyrda, Jakob Emerson and Kelly Gooch contributed to the development of this report.

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