Payers' Rising Costs Spell Trouble for Rev Cycle Leaders. Here's What to Do.

Payers are raising alarm over their rising medical costs. What should revenue cycle leaders look out for as payers rein in their rising costs?

Higher-than-expected medical costs spell trouble for payers across the nation. As they scramble to meet rising costs, revenue cycle leaders are left wondering how they will be affected.

United Healthcare combats rising costs with workforce cuts

United Healthcare revealed in January that its medical costs came in higher than expected and premium revenue lower than expected in the fourth quarter of 2024,  Reuters reported.  Rising medical costs were largely due to high demand for healthcare services among Medicare and Medicaid patients.

It seems the payer may be looking to its workforce to make up the difference caused by rising medical costs. United Healthcare has made buyout offers to some employees and could begin layoffs later in the year if too few accept, CNBC reported.

Cigna takes a hit on stop-loss insurance products

Cigna also revealed in January that it failed to meet earnings estimates in the fourth quarter of 2024 and that its underperformance was due to rising medical costs, Reuters reported.

Cigna was hit especially hard by claims on its stop-loss plans. Employers with self-funded health plans can purchase these plans to limit their health spending beyond a certain amount. However, Cigna is on the hook for any costs beyond that amount.

Like United Healthcare, Cigna pointed to high demand among Medicare and Medicaid patients as one factor behind higher-than-expected medical spending.

Cigna expects high costs associated with stop-loss plans to continue throughout 2025. Employers and the patients covered by their health plans may not be feeling the full effect of these rising costs. However, they will soon.

Pricing for stop-loss plans sold for 2025 was determined before their high costs were clear to Cigna. Employers and their employees will likely foot the bill when pricing for 2026 plans reflects the higher costs.

BCBSMA posts a $400 million operating loss

Blue Cross Blue Shield of Massachusetts announced a staggering operating loss of about $400 million for the full 2024 calendar year. Just a year earlier, the non-profit payer ended 2023 with an operating income of $47.8 million.

Losses at Blue Cross can largely be attributed to increased spending. Costs for medical care and medications are escalating at a faster rate than they have in a decade, according to CFO Ruby Kam. GLP-1 drugs played a large role in higher spending. Just five GLP-1 drugs accounted for more than $300 million of Blue Cross’ pharmacy spend in 2024

How it all adds up for revenue cycle leaders

Patients will likely be the ones forced to pay the most for rising medical costs.

Blue Cross indicated that it will address financial challenges by adjusting benefit plan pricing to reflect higher costs. Cigna indicated that it will increase prices for stop-loss insurance, and these increases will likely be passed to patients.

While patients stand to pay the most, provider organizations are not clearly the winners in these circumstances.

Payers may also look to provider organizations for relief in contract negotiations. Sarah Iselin, CEO of Blue Cross Blue Shield of Massachusetts, indicated as much during a Massachusetts Health Policy Commission hearing.

"I don't see much changing in terms of the major drivers of rates — which are provider prices and drugs," she said.

There may not be too much room for reductions.

As revenue cycle leaders know all too well, provider organizations continue to devote significant resources to operational difficulties tied to workforce shortages, government regulations, and rising claim denial rates.

What does this all mean for revenue cycle leaders?

The first step is to prepare for increased pressures in contract negotiations, as payers seek to shift financial burdens onto providers through rate adjustments and more stringent reimbursement policies.

These pressures come at a time when hospitals and health systems are already struggling with workforce shortages, growing labor costs, and heightened claim denials. With Medicare and Medicaid reimbursements failing to keep pace with inflation, hospitals may find themselves caught between rising operational expenses and increasingly challenging payer contracts.

Additionally, the anticipated cost shifts to employers and patients may lead to increased patient financial responsibility, exacerbating existing challenges with collections and bad debt.

As patients face higher deductibles and out-of-pocket expenses, revenue cycle teams will need to refine financial counseling, improve point-of-service collections, and enhance patient payment strategies to mitigate the risk of delayed or lost revenue.

The financial uncertainty affecting payers is a clear warning sign for revenue cycle leaders: the landscape is becoming increasingly complex, and adaptability is key.

Strengthening payer-provider relationships, leveraging technology for efficiency, and focusing on proactive revenue cycle strategies will be critical to navigating these turbulent financial waters.