Are Medicare Advantage plans in trouble? Plan size and star ratings could matter a lot, experts say

The booming Medicare Advantage (MA) market has been rocked in recent months over major regulations that could lead to payment cuts for next year as well as changes to risk adjustment standards and audits.

However, experts and analysts say that new regulations are more likely to hit smaller "insurtech" startups and nonprofit plans than the big players like UnitedHealth Group and Humana. The end result could mean more consolidation in a marketplace already dominated by a few larger insurers.

“We expect that MA plans will attempt to pass through most of the rate pressures for 2024, which should lead to a slower rate of growth for MA membership for the industry,” said Lance Wilkes, an analyst with Sanford Bernstein, in a statement to Fierce Healthcare. “We expect that larger MA plans will be better able to weather this environment and should take share over time.”

MA plans are trying to navigate two major regulations that came out over the past few months. One of them is the proposed advance notice, which must be finalized by April 3, which outlines pay rates for the 2024 coverage year and makes several coding changes. Another key regulation is a final rule that overhauls risk adjustment data validation audits, which aim to ensure MA claims are backed up by patient medical records.

While the Centers for Medicare & Medicaid Services (CMS) has estimated a 1% growth rate for plans in 2024, insurers believe that the calculation is faulty and cite their own studies that found the rule will result in a 2.27% cut. Insurers say CMS does not fully factor in changes to star ratings and the risk adjustment model set to take effect next year, assertions the Biden administration counters are false. 

Plans can likely manage a small cut without having a “real impact on profitability,” but the effect won’t be felt evenly, said Chris Meekin, managing director and Washington healthcare policy analyst for Raymond James, in an interview with Fierce Healthcare.

Nonprofit and smaller players, such as insurtech startups, could have a tougher go as they must implement other regulations or have a lower-than-expected star rating, which can affect the payments to plans. This year 51% of MA plans offering drug coverage have a star rating of four or more compared with 68% of plans last year.

“The people that got whacked on stars are going to feel that. That is just the reality for another year until the star ratings are updated,” Meekin said. 

Some of the changes to the star ratings include the removal of pandemic flexibilities and giving more weight to consumer experience survey feedback.

“There are lots of reasons that plans feel star ratings and the way you come up with them is not fair to them,” said Carla Dewberry, a partner with the law firm K&L Gates, in an interview with Fierce Healthcare. “Different plans have different patient populations.”

However, larger plans are “probably going to be fine and shouldn’t be worried about where things stand,” Meekin said. 

One of the biggest players in the space, Humana, even conceded this point during a recent presentation. 

“Our stars performance will carry us further than others in 2024,” said CEO Bruce Broussard during the Cowen Healthcare Conference on Tuesday.

Humana estimated overall membership growth in MA by 625,000 people for 2023, bouncing back from a lower-than-expected performance in 2022. The insurer also recently pulled out of the commercial market to focus more on its government program business. 

But while Humana is bullish about growth in MA this year, the program could have longer-term headwinds as the federal government tries to rein in overpayments to plans, Wilkes said. 

“There is some risk of some MA plans viewing [the advance notice] as a one-time rate pressure,” he said. “This could lead them to willingly reduce margin to maintain growth.”

There may already be signs that MA growth is slowing down. A recent study from the Chartis Group showed that MA enrollment grew by 5.5% in 2023 compared to 2022, a lower growth rate compared to prior years. 

The report also showed that nonprofit Blues plans as well as startups such as Devoted Health gained a slight market share in 2023 but still lag behind UnitedHealth Group, which made up 55% of all new enrollment, and Humana with 23% of new sign-ups. 

Meekin expects the advance notice, as well as the overhaul to risk adjustment audits finalized in late January, to potentially impact whether these smaller plans are able to get an edge.

“The big will get bigger and be fine. The small we will see fall by the wayside,” he said.