Joanne: For the last several years, Medicare Advantage plans have been growing in both enrollment numbers and popularity, with little to stop them. But are these trends slowing down due to market shifts and legislative changes from the Inflation Reduction Act? That’s exactly what we’re going to discuss today.

Cameron: Before we dive into those questions, my name is Cameron Giardini, and together with my co-host, Joanne Giardini Russell, we operate Giardini Medicare, an independent insurance agency based in Southeast Michigan. While we are based in Michigan, we work over the phone to help consumers in about 13 states find the right Medicare coverage. If we don’t operate in your state, we can connect you with another trusted independent agent who can help you find the coverage you need.

We also offer a free online course that you can register for at gmedcourse.com.

To give you an overview of today’s episode, we’ll discuss the current Medicare Advantage landscape, the new changes coming to Medicare Advantage plans in 2025, what others are saying about these plans, and finally, we’ll share our thoughts on the overall future of the Medicare Advantage market. So, to start, let's try to understand where the Medicare Advantage market might be headed. To do that, we need to understand what it looks like today.

Currently, in 2024, the Kaiser Family Foundation reports that 54% of eligible Medicare beneficiaries are enrolled in a Medicare Advantage plan. This number is projected to grow in the coming years, with KFF and others estimating that Medicare Advantage enrollment could reach 60% of Medicare-eligible enrollees as early as 2028. In addition to enrollment numbers, the Kaiser Family Foundation also recently published a report in early August with additional data about Medicare Advantage plans. We’ll highlight some of this information and provide a link to the report in the show notes for this episode.

In our opinion, Medicare Advantage plans are largely popular due to the extra benefits they offer that are not covered by Original Medicare. Plans can offer these extra benefits because, as KFF reports, in 2024, Medicare Advantage plans receive an average of $12,329 per enrollee, which is above the estimated cost of providing Medicare-covered services. They receive these payments in the form of rebates, but essentially, this means the plans earn over $2,000 more per enrollee than it would cost to provide standard Medicare services, which typically cover Parts A and B.

Currently, 56% of Medicare Advantage enrollees are in an HMO plan, and 75% of Medicare Advantage enrollees are in a plan with a $0 monthly premium, in addition to what they pay for Part B. The average Medicare Advantage premium in 2024 is $14 per month, which has steadily declined from $36 per month back in 2015. Lastly, in 2024, the average maximum out-of-pocket limit for a Medicare Advantage plan is $4,882 for in-network benefits and $8,707 for out-of-network services.

Joanne: In addition to the enrollment and premium trends in 2024, some Medicare Advantage plans are reporting issues with higher-than-expected plan utilization. Higher utilization is essentially what it sounds like—it means that plan members are using their plan benefits more than the carrier expected. This could be due to a higher need for medical services or greater use of extra benefits than anticipated.

To understand why utilization matters to Medicare Advantage plans, we first need to understand how these plans receive their funding from the federal government. Medicare Advantage plans receive what are called “capitated payments,” which are fixed payments to cover all services for all plan members. For example, an insurance company might receive $1,000 a month from the government to cover each person. The plans then have to calculate how they can use this funding to provide all the benefits their members need.

People often think that Medicare Advantage insurance companies want their members to never use any of the medical or extra benefits so they can keep as much money as possible. However, it’s important to know that these plans must spend at least 85% of the money they receive on medical claims and supplemental benefits, or they face severe penalties from the federal government. Generally, this leaves the other 15% for profits, administrative costs, marketing, and other expenses.

The reason we mention this is that higher-than-expected utilization by plan members cuts into that 15%, so the plans have to adjust to remain profitable. For example, if a Medicare Advantage plan expects 5% of its members to need an elective surgery, like a knee replacement, but 10% do instead, this higher-than-expected utilization cuts into their profit margins. We’re not saying this to make you feel bad for insurance companies but to help you understand that this impacts their future bids.

Cameron: Exactly. This often leads to a reduction in some of the extra benefits we mentioned earlier. With that in mind, let’s quickly cover the different changes impacting Medicare Advantage plans in 2025.

First, there’s higher utilization, just as Joanne mentioned. Overall, Medicare Advantage utilization has reportedly increased due to deferred healthcare services that many people didn’t receive during the pandemic. A report from America's Health Insurance Plans, better known as AHIP, states that utilization has increased for almost all types of services, particularly for outpatient surgery, ER visits, and general outpatient visits.

UnitedHealthcare also reported its highest loss ratio since COVID, which essentially means they are exceeding their 85% target. Aetna similarly reported that their medical loss ratio has reached 90.4%, which is over 5% higher than last year in 2023.

In addition, Medicare Advantage plans are experiencing higher-than-expected spending due to increased utilization, and they also report receiving lower funding from the federal government for 2025. In April, Medicare announced an overall increase in Medicare Advantage funding of 3.7%. Despite this, organizations like AHIP have expressed concerns that these funds are insufficient when combined with other factors, potentially leading to actual reductions in funding for Medicare Advantage plans in 2025.

Now, take this with a grain of salt because AHIP is essentially a lobbying group for Medicare Advantage plans, so we don’t want you to take everything they say verbatim.

Additionally, Medicare Advantage plans are impacted by the Inflation Reduction Act. Since these plans often include Part D prescription drug coverage, the 2025 changes to Medicare Part D will also affect Medicare Advantage plans. As we discussed in our previous episode, these changes include a $2,000 annual cap on Part D out-of-pocket costs, a new Medicare Prescription Payment Plan to spread out Part D co-pays, the elimination of the donut hole coverage phase, and increased financial liability on insurance companies during the final catastrophic phase of coverage.

All these changes combined will put pressure on the Medicare Advantage market heading into 2025. Now, we will discuss what the industry is saying about these changes and, of course, give our thoughts and opinions.

Joanne: Let's talk about the possible impacts of the 2025 changes. First, increased premiums. It seems logical to think that, given the financial pressures Medicare Advantage plans are facing, the easiest way to counter this would be to raise monthly premiums. However, we don't think it’s that straightforward since the $0 premiums associated with Medicare Advantage plans are a significant factor in their popularity among Medicare beneficiaries.

Instead, as we discussed earlier, Medicare Advantage plans receive large amounts of rebate dollars from the federal government to provide extra supplemental benefits. Uniquely, they can shift some of these rebate dollars toward their Part D drug plan benefits to help keep premiums lower than they would be without those rebates. For a simplified example, if a plan wanted to raise premiums by $20 a month to compensate for prescription changes, they could instead shift $20 a month from rebates to avoid this increase.

In fact, on July 29, Medicare released a new program to limit 2025 Part D premium increases, but they specifically excluded Medicare Advantage plans from this program, stating that based on the bids Medicare received in June, Medicare Advantage plans were able to use rebate dollars to limit those premium increases.

Another impact could be the reduction of extra benefits. While plans can use rebate dollars to help offset rising prescription costs and avoid raising premiums, this doesn’t mean there won’t be negative impacts on other parts of the plans. This means plans may have fewer rebate dollars overall to use for other extra benefits. So, you should prepare for plans to either reduce the number of extra benefits they offer or cut some altogether.

In Aetna’s earnings call, they specifically mentioned increasing their profit margins over a dozen times and referred to making “meaningful adjustments to their offerings, supplemental benefits, and Part D, both sources of incremental pressure in 2024.”

Cameron: Which is basically corporate speak for, “We have to make the plan less generous to increase our profits.” Continuing with other possible impacts of the 2025 Medicare Advantage changes, we could see higher out-of-pocket costs. In addition to potentially reducing supplemental benefits, plans might also increase members' cost-sharing to maintain their profit margins.

For example, a plan could increase the specialist visit copay from $30 to $40 or raise hospital copays, among various other choices. However, plans are limited in how much they can increase these out-of-pocket costs due to certain regulations. While this is a possibility, we don’t think it will be very common. Instead, we think it is more likely that plans will adjust supplemental benefits and prescription benefits before making changes to core medical benefits like copays.

As Joanne already mentioned, some plans may simply leave different markets. Medicare Advantage plans are not the same across the country, and the plans offered vary from one county to another. The final impact

we’ll discuss is that there is a real possibility some Medicare Advantage plans will exit certain markets where they do not feel they have adequate profitability.

At this point, this isn’t just speculation; it's practically a fact. During the WellCare earnings call, they specifically stated, “We expect to shrink in 2025.” Newsweek also reports that WellCare will be removing some plans from Alabama, Massachusetts, New Hampshire, Rhode Island, New Mexico, and Vermont. WellCare is not alone in leaving markets, so we won’t single them out. In Humana's earnings call, they mentioned they would reduce membership by a few hundred thousand, primarily related to plan exits. Lastly, CVS, which owns Aetna, expects to lose as much as 10% of their overall membership, and the head of Aetna was recently fired due to what was described as poor performance and outlook.

One key takeaway regarding a plan leaving a market: if you're in a Medicare Advantage plan that will be exiting your county in 2025, leaving you without coverage, that actually grants you guaranteed issue rights to certain Medigap plans with no health questions. If this interests you, be sure to explore those options for 2025.

Joanne: Now, let’s share our thoughts and takeaways on this topic. At this point, we think it's safe to say that the coverage and benefits that most Medicare Advantage plans will offer in 2025 will not be as strong as what we’ve seen in 2024. However, it's crucial to remember that while plans might not be as robust as in 2024, it doesn’t necessarily mean they’ll be bad.

We’ve seen Medicare Advantage plans steadily reduce their out-of-pocket medical costs, lower premiums, and provide more extra benefits than ever before over the past few years. Because of this, it’s not surprising that their enrollment numbers are also higher than ever. Even if Medicare Advantage plans take a step back, we don’t believe they are going anywhere, and they certainly aren’t going to disappear—despite some people wishing they would.

In most markets, several insurance companies offer Medicare Advantage plans, and we believe some companies will still look to capitalize on the misfortunes of others to attract members who may be losing their current plans. Lastly, remember that Part D plans are facing their own affordability challenges heading into 2025, as we discussed in our previous episode. This will negatively impact the overall Part D and Medicare Supplement markets as well. So, even if Medicare Advantage plans do “worsen,” it doesn’t mean people will automatically switch to Medigap and Part D options. However, we highly recommend everyone at least consider Medigap and Part D options as an alternative to Medicare Advantage to see what might be available.

Cameron: No matter what happens to the Medicare Advantage market heading into 2025, it's essential to look out for the Annual Notice of Change that your current plan will send by the end of September. This will help you understand exactly how your current plan is changing, and then you can use that information to compare different Medicare Advantage plans available in your market starting October 1st. Or, as Joanne suggested, you can also consider Medigap and Part D options if you qualify.

As always, please leave us a review on your podcast app and subscribe so you can catch future episodes. You can also find more Medicare content from us by searching “Giardini Medicare” on YouTube. If you’d like to schedule a phone call with one of our brokers, you can do so at gmedicareteam.com. And finally, if you have any feedback or questions, feel free to email us at info@gmedicareteam.com. Thanks, and have a great day!