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Show Us The Money: Payers Cry Foul Over Possible MA Rate Cuts

Analysis  |  By Marie DeFreitas  
   February 28, 2024

The recent proposed MA rate cuts could cut into payers’ profits, and payers are fighting back.

Medicare Advantage (MA) has long been a favorite of payers, often doubling their profits. But will potential rate cuts send payers fleeing out of the program?

Originally, CMS expected MA rate cuts to drop about 0.16%. But a recent study from the payer lobbying group Better Medicine Alliance, which represents payers in Medicare, found that if the proposed rates are approved, next year MA cuts could drop by 1% per month per beneficiary.

Payers are arguing that CMS didn’t consider higher utilization, which has increased considerably among seniors.

So where did the CMS go wrong?

The Growth Factor

Insurers are saying CMS failed to take the growth factor—and how the growth rate is affecting payers’ spending—into consideration when calculating the proposed rates.

With increased costs at play, the growth factor is vital in calculating the overall MA reimbursement rate. For 2025, regulators calculated a growth factor of 2.4%, but realistically, it’s leaning more towards 4-6%, according to the Berkeley Research Group analysis.

This change is likely to affect premiums and supplemental benefits for members. Since the second quarter of last year, MA saw an uptick in care utilization, especially in outpatient care such as hip and knee surgeries/replacements. With this trend continuing, payers are seeing a dip in their profits from premiums.

The Lobbing Effort

Now, payers are urging regulators and administration officials to pressure CMS to change the proposed cuts before the finalization goes through on April 1.

Although this may not spur the lobbying efforts we saw by payers last year, it will however still most likely include a digital ad strategy to oppose the newest cuts. American seniors have already taken to organizing meetings on Capitol Hill to protest the changes, saying that they don’t want their coverage to change.

The Earnings Outlook

For payers who lean hard into the MA market, the proposed cuts could ruffle some feathers.

Humana, which brings in a large portion of its revenue from Medicare, brought forward an internal analysis that said the cuts would cause its funding to drop by 1.6%. Cetene (also a MA-heavy insurer) complained the cuts would drop its rates by 1.3%.

The cuts will certainly have effects, but probably not as intensely as payers are anticipating. The fact is that only two insurers, CVS Health and Humana, are actually looking at a cut in their 2024 earnings outlook coming into this fiscal year, citing higher medical costs.

But these cuts are not exactly spelling doom for payers in the MA market, CMS says.

CMS stated that from 2024 to 2025 MA payments from the government to MA plans are expected to increase on average by 3.7%, or over $16 billion. 

MA may not be the cash cow for payers that it used to be. Although the proposed rates will likely be lowered, payers are still likely to intensify their coding practices, up premiums, and drop some benefits, hurting beneficiaries who are comfortable in their current plan.

If it stands, the final rule could send payers exiting what they consider an underperforming market.

Will the dip in profits cause some payers to jump the MA ship altogether?

Comments on the matter are due March 1, so we’ll check back in April.

Marie DeFreitas is an associate content specialist at HealthLeaders.


Newly proposed MA rate cuts are causing pushback from payers

The proposed rates could see MA cuts drop by 1% per month per beneficiary next year

Insurers are arguing the CMS did not calculate the rising utilization costs that payers are facing

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