As Medicare Advantage continues to grow and health insurers prioritize their margins in the segment, hospitals are the most vulnerable healthcare provider to rising administrative and financial MA burdens, according to a new report from S&P Global.
The Aug. 15 report shared with Becker's highlights the major growth Medicare Advantage has seen over the last several years, with 32.8 million people, or 54% of the eligible Medicare population, now enrolled in an MA plan.
"This growth poses challenges to healthcare service providers' credit quality, given growing risks to reimbursement from MA plans relative to traditional Medicare, as well as the payment risk and higher complexity around prior authorization requirements," S&P's analysts wrote. "We also see future risks to providers if at some point CMS addresses the MA program's higher-than-expected spending."
As MA enrollment has grown, so too have the financial headwinds facing major carriers — government scrutiny is rising, CMS regulations and payments are tightening, and the cost of care is going up.
In response, Aetna, Humana and Centene are among the insurers that have said they will exit some markets in 2025 — and potentially reduce benefit offerings — to accommodate the changing reimbursement environment and rising costs. Notably, UnitedHealthcare and Elevance Health have said they are prepared to weather the changing landscape and priced their 2025 MA plans to reflect that.
"However, if already elevated utilization rates remain high for an extended period we would expect payors to further squeeze payments to providers," S&P's analysts wrote. "Overall, we expect these challenges coupled with further expansion of MA as a percentage of total Medicare beneficiaries will continue to pressure margins on the Medicare portion of the provider payor mix."
"Thus, we expect insurers to prioritize margin over membership, and we expect large insurers will use their scale and market clout to limit provider rate increases over what will prove to be a challenging contract negotiation season."
In 2023, Becker's began reporting on hospitals and health systems nationwide that dropped some or all of their Medicare Advantage contracts in response to administrative and financial challenges. In 2024, at least 17 systems have ended an MA contract with an insurer.