Higher medical spending could be the new normal for the future of Medicare Advantage plans — and insurers will have to find a way to respond, according to a recent McKinsey report.
Some MA payers reported higher-than-expected inpatient and outpatient care utilization in their 2023 year-end financial results, and cited this as cause for an increasing medical-loss ratio. Looking ahead, the financial pressure on payers is expected to continue.
Future of Medicare Advantage Plans: Containing Payer Costs
In this environment, most MA payers are focused on containing costs. According to the report, savings will need to come from both medical costs and value-based care, as well as administrative expenses and product design changes. But none of this lessens the need to invest to meet growth expectations and Star-rating goals.
The NIH reports that implementing Value-Based Medicine (VBM) to address chronic diseases could achieve savings of 9% to 16% on the total healthcare providers’ budget.
All of these factors are expected to complicate growth and revenue.
Top 5 Trends to Consider for The Future of Medicare Advantage Plans
In addition to rising costs, health insurers are navigating an aging population, regulatory changes, and changing member preferences. To keep pace with the market, the MA program is undergoing its biggest shifts in more than two decades.
The report identifies five key trends insurers need to consider in the future of medicare advantage plans.
1. Aging Population & Labor Shortage: MA enrollment has been on a steady climb for the past two decades. In 2023, more than half of eligible Medicare beneficiaries enrolled in MA plans. The Congressional Budget Office (CBO) projects that the share of all Medicare beneficiaries enrolled in MA plans will rise to 62% by 2033.
Coupled with our aging population, there is an ongoing labor shortage across the healthcare industry. To address workforce challenges, the report cites 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 wearables, remote monitoring, telehealth, and data platforms. The responsibility falls on payers to help members navigate new tools.
2. Product Reset: In 2024 and beyond, payers may see more value in aligning benefits with target cohorts rather than follow the ‘all things to all people’ approach of recent years. Insurers may become more selective about how many plans and benefits they offer, as medical costs rise and policymakers reconsider the value of supplemental benefits.
3. SNP Growth Opportunities: Driven by both demographic and regulatory trends, Special Needs Plans (SNPs) continue to be an area of interest.
As MA population growth begins to slow, payers are seeking 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 and more states continue to move into the market. New models are expected in 2026 for Illinois, Michigan, and Rhode Island, and many more states are considering pursuing new D-SNP contracting strategies.
4. Star Ratings Pressure: Besides planning for demographic shifts, payers will need to adjust to tough changes to Star ratings from CMS. Insurers will also need to shift their focus to quality outcomes, as CMS will deemphasize beneficiary satisfaction ratings in its star ratings.
5. Constraints on Brokers: Increased regulation of third-party marketing and broker organizations may lead insurers to upgrade their own marketing and sales efforts.
What is the Future of Medicare Advantage Plans for 2024 and Beyond?
As we look to the future, Medicare Advantage Plans are expected to continue evolving. Enrollment in these plans has been rising steadily, and we anticipate a shift towards cost-saving measures and increased market pressures. Despite these challenges, opportunities will arise. Insurers can position themselves for success by tailoring benefits to specific groups and enhancing their offerings. Ultimately, staying competitive will depend on continuously assessing and adjusting to changing needs and market conditions.
MA Plans are Booming:
How Will You Stay Competitive?
Download our report “Home Benefits Surge in Popularity Among Medicare Advantage Plans” to learn more about leveraging supplemental benefits to increase member satisfaction, retention and STARs.
