Private Insurers Used To Rely On Medicare and Medicaid For Big Profits. Now, The Programs Are Costing Them Billions. – The Average Joe

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    Private Insurers Used To Rely On Medicare and Medicaid For Big Profits. Now, The Programs Are Costing Them Billions.

    Noah Weidner

    May 30, 2024

    Nearly 145M Americans — seniors, low-income, and disabled individuals — rely on public healthcare plans like Medicare and Medicaid. That’s around 42% of the population. But don’t be fooled: the primary beneficiaries of these cheaper healthcare plans haven’t been the patients but the private insurers who manage plans for virtually all Medicaid enrollees and half of Medicare users. However, this might soon change.

    Insurance disturbance: For years, major insurers profited from government healthcare plans like Medicare Advantage and Medicaid. But post-pandemic, medical claims have surged, outpacing enrollments — and government reimbursements haven’t kept up with rising costs. The Centers for Medicare and Medicaid Services approved a modest 3.7% increase in 2025 Medicare Advantage plan rates, a slap in the face for insurers who expected more. Consequently, private insurers are bearing the brunt financially.

    • Humana ($HUM), which manages Medicare plans for 6M Americans and receives 80% of its revenue from the program, axed its 2024 outlook after reporting a $541M loss in Q1.
    • UnitedHealth ($UNH) CEO Andrew Witty said it would take several quarters for states to reimburse higher Medicaid costs.

    Insurers Learn What it Means to “Pay Out of Pocket”

    Due to rising costs and claims, private insurers have struggled this year, following years of strong market performance. CVS Health ($CVS) and Humana are down 26% and 16% year-to-date, respectively.

    • In recent years, CVS’ Aetna business offered generous plans to catch up to industry leaders and had set a goal to add more than 600K members this year — a bet that turned out to be poorly timed.
    • CVS CFO Thomas Cowhey stated that next year’s focus will shift to “margin over membership,” adding that the company might lose up to 10% of its Medicare plan users (WSJ).

    Less for more: In response to these challenges, insurers intend to hike prices and cut benefits. UnitedHealth and others plan to reduce vision, dental, and prescription drug coverage — and some might exit markets entirely. But despite losing millions of Medicaid members last year, insurers saw revenue from these programs increase — indicating that shrinkflation is expanding beyond the grocery aisle.

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