The Future Of Medicare Advantage Plans

by Howard Gleckman for his blog

To the shock of the big insurance companies that run most Medicare Advantage managed care plans, the government has proposed boosting payments to plans by just 0.09% in 2027. That would be a fraction of the annual increase plans received in the past and far below what they, and their investors, expected. Share prices plummeted and plan executives darkly warned of future benefit cuts.

What would it really mean for enrollees? Insurers can respond to lower-than-expected federal payments in several ways. They can raise premiums, scale back certain optional benefits such as vision and dental care, pay their network providers less, or withdraw from less profitable markets.

They also could accept lower profits. But that seems an unlikely option even though MA generates gross margins that are nearly double what insurers get from the individual insurance market.

What will it mean for competition? Today, three insurers, United Health Group, Humana, and CVS Health insure 54% of MA enrollees. If the big three withdraw from some markets, will that leave seniors without managed care options or will smaller, not-for-profit firms be willing to accept narrower margins step into the breach?

High Costs, Limited Benefit

I suspect once the insurers are finished lobbying, Medicare will boost its proposed 0.09% increase once it locks in 2027 rates in April. Last year, the government eventually doubled its initial proposal. Still, this is only the latest move by the Trump Administration to try to control MA costs.

And no wonder. MedPac, the independent organization that advises Congress on health care, estimates Medicare will pay MA plans $76 billion, or about 20%, more in 2026 than what it would pay under original Medicare.

That shouldn’t be a surprise. Medicare has consistently paid the plans more over the past decade. And for the last four years, the additional costs have run in the neighborhood of $80 billion annually. Overall, Medicare paid the plans $538 billion in 2025.

This has turned the concept of MA on its head. The initial promise was that by coordinating care, private insurance would improve patient health and save the government money.

And there was good reason to believe that by managing and coordinating care, plans could out-perform original Medicare’s deeply fragmented delivery system.

It has not happened. Not only has MA been more costly than traditional Medicare, there is little evidence that the plans provide overall better health outcomes. According to a 2022 KFF review of 62 studies, MA scores higher for some conditions, but the same or worse for others.

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