Health Transformation Institute (HTI)
Joaquim Cardoso MSc
February 13, 2024
What is the message
Health insurers, particularly those offering Medicare Advantage plans, are experiencing significant financial challenges due to an unexpected increase in medical costs.
This surge in costs is attributed to older patients seeking medical care at higher rates, including procedures delayed during the Covid-19 pandemic, such as joint and hip replacements.
Companies like CVS and Humana have revised their profit outlooks downwards as a result of these escalating costs, leading to concerns among investors about the sustainability of profitability in the health insurance industry.
Additionally, regulatory changes such as the implementation of the “two-midnight rule” add further complexity and uncertainty to the operating environment for insurers.
In short, there is a pressing need for insurers to adapt to changing healthcare dynamics and regulatory requirements while ensuring the financial sustainability of their businesses.
In short, there is a pressing need for insurers to adapt to changing healthcare dynamics and regulatory requirements while ensuring the financial sustainability of their businesses.
Executive Summary:
Health insurers are facing increased pressure as older patients, particularly those enrolled in Medicare Advantage plans, are seeking medical care at higher rates than anticipated.
This trend has led to a surge in medical costs, notably for procedures that were delayed during the Covid-19 pandemic, such as joint and hip replacements.
CVS and Humana, two prominent players in the health insurance industry, have revised their profit outlooks downward due to the escalating medical costs.
Examples and Statistics:
- CVS, the owner of health insurer Aetna, recently lowered its full-year profit outlook, attributing it to the potential impact of higher medical costs on its profitability.
- Humana also cited increased medical costs as it issued a bleak earnings guidance for 2024, indicating a widespread concern among insurers.
- Medical costs from Medicare Advantage patients have notably risen over the past year, particularly due to an uptick in procedures like joint and hip replacements that were postponed during the Covid-19 pandemic.
- The medical benefit ratio, a measure of total medical expenses paid relative to premiums collected, increased significantly for both CVS and Humana, indicating the strain on their profitability.
- The “two-midnight rule,” a new policy affecting Medicare Advantage plans, requires coverage for hospitalizations lasting beyond two midnights, posing additional challenges for insurers.
Conclusions and Recommendations:
- Insurers must anticipate and adapt to the evolving healthcare needs of older patients, particularly those enrolled in Medicare Advantage plans, by incorporating flexible pricing strategies and optimizing healthcare delivery models.
- Investment in preventive care and telemedicine solutions can help mitigate the burden of escalating medical costs while ensuring comprehensive healthcare coverage for older adults.
- Collaboration with healthcare providers to streamline care pathways and optimize resource utilization can enhance cost-effectiveness and improve patient outcomes.
- Continuous monitoring and evaluation of regulatory changes, such as the “two-midnight rule,” are essential to mitigate compliance risks and optimize operational efficiency.
- Diversification of revenue streams through expansion into complementary healthcare services and pharmacy operations can provide insurers with greater resilience against fluctuations in medical costs and regulatory changes.
Source — Adapted from CNBC news
