Shifts coming in Medicare plan offerings, costs

Federal government changes to Medicare reimbursements, along with demographic trends and other factors, are expected to impact the market for private-sector Medicare plans as soon as next year. In May, Newsweek reported that some large private insurers have already indicated that their Medicare Advantage plans may change in the near future, in terms of both specific offerings and costs.

Larry Tereso, MIIA’s vice president for employee benefits, advises municipalities to plan for these new developments and their implications for retirees, who often outnumber the active municipal workforce.

“Medicare Advantage plans are changing,” he said. “And although there are controls in place by the federal government, it’s crucial for municipalities to stay informed and plan ahead.”

Changing landscape
The U.S. Centers for Medicare and Medicaid Services announced new payment rates and regulatory adjustments that affect revenue growth for private insurers who offer Medicare Advantage plans — leading to reduced profits and cost-containment strategies. A recent McKinsey report noted that any cost savings for these companies will need to come from a combination of changes to medical rates, implementing value-based care, administrative expenses, and changes in product design. And insurers must do this while also meeting investor expectations and achieving Star-ratings (the system used by CMS to evaluate Medicare Advantage and prescription drug plans).

The aging Medicare-eligible population also plays a role in the market shift. Nearly half of the Medicare Advantage-eligible population will be 75 or older by 2030, up from roughly 40% currently, according to the McKinsey report. Chris Bailey, director of MIIA’s Health Benefits Trust, adds that health care use rates in this demographic are also on the rise, as seniors schedule COVID-postponed elective procedures such as knee and hip replacements. Additionally, chronic conditions may have worsened over time, with a gap in care, and now require more expensive treatments.

With the health care sector facing a severe workforce shortage, the McKinsey report points out that insurers must also cover costs to develop and expand upon new models of care — such as telehealth and wearables to gather targeted health data — in order to better serve the aging population.

Trends to watch
Although the only change that can happen to Medicare Advantage plans in 2024 is network adjustments (with some hospitals dropping out of plans), retirees could see benefit reductions and out-of-pocket increases in 2025 and beyond. Tereso noted that it is not yet clear what plan changes will occur, but some experts predict rollbacks on vision, dental, and flex card coverage.

According to the McKinsey study, insurers may shift from more generous (often free) benefits to increasing their return on investment through benefit designs that boost retention, such as features to make them easier to use, and benefits focused on specific, improved health outcomes. Insurers may also increase Special Needs Plan offerings, which address specific health conditions such as diabetes, cancer and stroke, as well as serving seniors living in nursing homes and assisted living facilities.

Considerations for municipalities
With the fall open enrollment period on the horizon, Bailey advises municipalities to be aware of market trends and engage in budgeting conversations locally, as co-payments could increase and there may be an adjustment period.

“More will be known about the exact budget impact in the next few months,” Bailey said. “In the meantime, municipalities can reach out to their retiree health insurance account representative to get up to speed and make sure they are aware of changes to plan offerings for next year.”

Written by Jennifer Ranz