Medicare advantage (MA) companies are being financially squeezed, and Medicare supplement (Medsupp) rates continue to rise. The following are several factors contributing to this problem.
Medical Inflation
Just as we’ve seen our grocery prices and pretty much everything else across the board increasing, the same thing is happening in the medical field. More medical costs means both Medicare, MA companies, and Medsupp sponsors are hit with increased costs.
Twenty-five years ago, the Part A (hospitalization) deductible was around $1,000. In 2026 it will be around $1,700. Since most Medsupp plans cover 100% of the Part A deductible, that means the insurance companies are continually hit with higher claims every year. To add to that burden, the increasing Part A deductible also increases other Part A co-insurances.
The Inflation Reduction Act passed during the Biden administration added more costs that the MA plans must cover. One example out of several is that the MA companies now must cover the Shingles vaccination.
Regulatory issues
This applies to the MA companies. Here are just two situations, upcoding and prior authorization (PA).
Upcoding: Some companies, particularly the larger ones, have been accused of unnecessarily upcoding a member’s health condition in order to receive more money from Medicare. It runs something like this:
The MA companies like to send a home health care nurse out to their members’ homes to do a health risk assessment. These visits can accomplish some useful things, but they are also a fishing expedition.
A home health care nurse visits Wally Winkle and while there, finds a bottle of lisinopril, a common high blood pressure prescription, in his medicine cabinet. The nurse dutifully notes this down. Later, a worker at Acme Health sees this note and, per company instructions, flags Wally as “hypertensive” in the system. This entitles Acme Health to another $50 per month or so from Medicare. Wally quit taking his blood pressure medications six months ago.
Due to increased government scrutiny, the days of excessively upcoding a member’s risk score are closing. The jig’s up. The party’s over.
Prior Authorization: Many MA companies have instituted prior authorization (PA) requirements for various medical procedures such as a hip replacement. We can argue that there are valid reasons for doing this, but some MA companies have been accused of excessively using prior authorizations as a tool to slow done their claims experience. Less claims paid out equals more profits for the company. The window is closing for this abuse.
Medicare Loss Ratios or High Medical Utilization Rates
This is a problem with many factors. It all adds up to the fact that the utilization of medical services remains high. We have heard that in some regions of the country it takes months to see a specialist or even just a primary care physician. Let’s look at some of the drivers of this occurrence.
Covid delays: People delayed procedures during Covid, but since 2023 they are having them performed. These post-Covid medical events are one contributing factor adding to high Medicare utilization rates.
Employer plans with higher cost sharing: There’s a new phenomenon occurring. In days past, people typically completed their medical procedures while on their employer or group medical plan. The four most common medical procedures involved are cataract surgery, rotator cuff surgery, hip replacements, and knee replacements.
In order to control costs, companies and other group plans have increased their deductibles, co-insurances, and maximum-out-of-pocket. That means, of course, that the insured or employee would have to shoulder more of the expense.
Now, more and more people are waiting until they go on Medicare to have these procedures performed seeing that they will have less out-of-pocket compared to having the procedure performed while on their company plan. This is a significant factor aggravating medical loss ratios for both MA and Medsupp companies.
Let’s look at a couple of scenarios. Acme Health’s PPO Medicare advantage plan has a zero copay for a primary care physician visit and a $40 copay to see a specialist. Their outpatient copay is $300. Alternatively, if one went on original Medicare and signed up for a Medicare supplement Plan G, his/her only out-of-pocket is the Medicare Part B deductible, which is $257 in 2025.
Also, keep in mind that, in general, there is no medical underwriting for either situation at 65. There is no medical underwriting at any age for MA plans.
Example #1: Bonnie Boone decides to sign up for a zero or low premium Medicare advantage plan. Her plan has a $300 copay for an outpatient procedure including cataract surgery. For two eyes that’s $600 out-of-pocket plus some other possible incidentals not covered by Medicare.
That’s far less than a $5,000 deductible with her group employer plan. Maybe she has a better plan with only a $2,000 deductible and a 20% cost sharing after that. Either way, she calculates that’s she’s way ahead of the game if she can put off her cataract surgery until she’s on Medicare.
Example #2: Wally Winkle came to the same conclusion when he was facing a knee replacement. Here is his thinking: “If I can just tough it out for another few months or so, I’ll be out hundreds when on Medicare rather than thousands on my company plan.”
Wally, turning 65, decides to stay on original Medicare and sign up for Plan G with Wonder Health. Since it’s open enrollment for his Medsupp plan from 65 to 65 ½, there is no medical underwriting. He has his knee replacement done during his first year on Medicare.
He’s out his $257 Part B deductible (in 2025) plus some other possible incidentals not covered by Medicare. His out-of-pocket would have been substantially more on his employer plan.
Both Acme and Wonder Health take big hits. If the frequency of these medical events increases too much, there are two likely outcomes.
Acme Health’s MA plans can increase their member’s cost sharing by instituting deductibles where none previously existed. They can change a copay to a coinsurance. They can increase their maximum out-of-pocket. Lastly, they can also increase their plan’s premium
The MA companies can whittle down their extra perks such as dental and vision. Or they can do the nuclear option and cancel their plans in a given county or even the entire state.
WonderHealth has an easier solution for their Medsupp plans. They document their increasing losses to their respective state insurance departments and file for a rate increase.
More drastically, they can close their block of business in a given state, meaning that they take no new applications. When this happens, the existing insureds in that state are still covered, but they don’t take on any new applications.
Very rarely, the company could just shut down and cancel everyone’s policy. If that happens, the insureds have guarantee issue rights to go to another Medicare supplement plan with no medical underwriting.
Degenerative Diseases Are on the Rise
This is a huge problem. The diabetes epidemic continues to worsen. Recently, a major news network posted an article saying that regular cannabis usage contributes to several health issues including diabetes. More research is coming out saying that regular consumption of alcohol leads to many additional health problems.
To delve fully into this issue is way beyond the scope of this article. There is one thing that you can do, and that is to be proactive about your health.
Medicare Part B Premium Increase
Unfortunately, the Medicare Part B premium is projected to increase approximately $21 per month beginning in 2026. The COLA for Social Security will be something like 2.8%, but the Part B premium increase will erase some or all of the Social Security bump. End