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Medicare Advantage plans are about to change

30 May 2024 9:46 AM | Anonymous

Medicare Advantage patients might be in for a rude awakening as CVS plans to get rid of 10 percent of its plans.

CVS Health made the decision to cut the Aetna health insurance plans in an effort to prioritize profit margins, company leaders revealed this week.

"The goal next year is margin over membership," CFO Thomas Cowhey said. "Could we lose up to 10% of our existing Medicare members? It's entirely possible. And that's okay, because we need to get this business back on track."

After releasing the company's first-quarter earnings, CVS was $900 million below its health care benefit predictions on medical costs, with $400 million lost due to heavy outpatient service utilization.

Currently, CVS is the third largest Medicare Advantage insurer in the country, with the company saying it had 4.2 million enrollees as of April. If 10 percent of its current plans are exited, that would leave 420,000 beneficiaries needing to switch to a different plan or go without coverage.

"With rising medical costs outpacing government reimbursement increases, CVS is prioritizing profit margins over membership growth for its Medicare Advantage plans. However, this strategy could impact benefits and plan availability for many retirees," Michael Ryan, a finance expert and founder of michaelryanmoney.com, told Newsweek.

Earlier this year, the Biden administration said it would be cutting next year's payments to Medicare Advantage plans by 0.16 percent, adding onto the financial pressure CVS and other insurers are feeling at the national level.

Ryan said the decision to cut plans is logical as medical costs keep climbing and seniors seek out more care than years previous as more Baby Boomers retire. At the same time, 2025 Medicare Advantage payment rates do not look like they will cover the increasing expenses.

"CVS has bluntly said the new rates are insufficient 'to cover overall cost trends,'" Ryan said. "So they're taking steps to recover profit margins, targeting a 4-5 percent margin for their Medicare plans by 2025."

Insurers often first target supplemental benefits like fitness memberships and over-the-counter medication allowances, so CVS is likely to look at those first. However, some counties might be axed altogether if they can't be profitable, Ryan said.

"And we can't rule out premium increases to make the numbers work," he said.

Still, if CVS wants to be sustainable in the long run, it will need to still be able to retain and attract new members.

"I don't think CVS wants to gut their Medicare Advantage plans to the point of being uncompetitive," Ryan said. "They're banking on efforts to better capture members' health conditions and boost risk-adjusted reimbursement rates down the line. Insurers have to continually re-evaluate and rebalance their models as medical inflation, regulations, and reimbursement rates shift."

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