Rae Woods (00:32):
From Advisory Board, we're bringing you a radio advisory, your weekly download on how to untangle healthcare's most pressing challenges. My name is Rachel Woods. You can call me Rae. I think you can all agree that there's a lot of noise around Medicare Advantage right now, and frankly, that's not just among healthcare insiders. My team found monologues from late night hosts like John Oliver. We've also seen Senate reports. We've seen headlines about the latest health system that is dropping MA plans. Today, I want to dig into what's changing and what's happening next with Medicare Advantage. But before we do that, I feel like we might need to do a reminder of what Medicare Advantage is and what changes we've already seen. Medicare Advantage operates as the private plan alternative to the traditional government run Medicare. It includes Part A for inpatient services, Part B for outpatient, Part D for pharmacy benefits, and often includes some extra benefits for seniors as well.

(01:32):
And this idea isn't actually new. The bones of what is now Medicare Advantage actually launched way back in 1997 with the creation of Medicare Part C, which at the time authorized new private plan options to partner with and provide coverage to Medicare patients. Then in 2003, that program was renamed Medicare Advantage, but it wasn't until the Affordable Care Act in 2010 that we started to see, frankly, huge booms in enrollment. And that meant a lot of revenue on the table for health plans. Now flash forward to today, 2026, and it seems that the MA program has lost its shine. Instead, we're facing intensifying instability in the MA market.

(02:20):
Okay. Now that we've got that little history lesson out of the way, it's time to focus on the future, where MA is going next and what it means for plans and providers. And the best people to have that conversation with our Advisory Board health plan experts, Sally Kim and Aaron Hill. They're going to help us look beyond the noise of those headlines, beyond the monologues, to better understand what's happening today and where the market is going next. Sally, Aaron, welcome to Radio Advisory.

Sally Kim (02:49):
Thanks, Rae.

Aaron Hill (02:50):
Thanks. It's a pleasure to be here.

Rae Woods (02:53):
If I'm honest, Medicare Advantage has experienced a ton of whiplash. It's a pretty volatile part of the market. And the story here is changing in part because we know that MA experienced kind of crazy growth across the 2010s. There was a ton of talk, some concern, some excitement that MA enrollment would completely surpass traditional Medicare. But then in the last few years, there's been this pendulum shift, at least in the conversations that I'm hearing around MA. Help me understand what is actually happening and is MA still growing?

Sally Kim (03:31):
MA is still growing, but it is not making headlines anymore, at least in terms of growth. It is definitely more in that plateauing stage. So total membership grew only by 4% between 2024 and 2025, which is the slowest rate that it's been in about a decade.

Rae Woods (03:52):
And so a slow growth rate has got to mean bad things for plans.

Sally Kim (03:58):
Well, it's interesting you say that because this is definitely a more stressful line of business now for plans. Many headwinds hitting all at once. We actually predicted this a couple of years ago when we said that the government is probably going to start scrutinizing MA more and they definitely are. That being said, it's not necessarily because of the growth rate. Now we're in a market where for MA, growth doesn't necessarily mean profitability.

Rae Woods (04:27):
Which gets me to another shift in Medicare Advantage, or at least the rhetoric around it. If I think about a handful of years ago, the story of MA was absolutely about the potential. It had this shine of a win-win. Right. Plans were clamoring to launch their own products. Consumers were excited about the choice and the benefits that plans had to offer. And today, I'm hearing a lot more about plans actually saying, "Hey, I'm going to pull out of certain markets." Or I'm hearing a lot of tension between plans and providers around Medicare Advantage. Is MA still something that plans are interested in investing in given this slowdown in enrollment and given how much more difficult it is to succeed and be profitable in that business?

Sally Kim (05:10):
There's definitely still interest, especially because so many plans went into Medicare Advantage. They want to try and make it work. At the same time, we're seeing plans exit the market because they're realizing, "Oh, this is hard. This isn't something I can just do off the side of my desk?" So plans who entered MA during that growth phase a few years ago were hoping that this would be an easy win, they were in for a rude awakening.

Aaron Hill (05:37):
The margins are a little tighter than they have been in the past, but there are still opportunities in that market, but the game has started to shift a little bit in the last couple of years.

Rae Woods (05:48):
Which isn't that different than what I'm seeing across the healthcare ecosystem generally. The focus across the board is a lot less on top line growth and it's more about sustainability. My question is, what is unique about the headwinds in Medicare Advantage right now that is creating this shift from growth to sustainability?

Aaron Hill (06:10):
I agree with that. And the way that I find it most helpful to think about the state of MA right now is to break down the headwinds into two parts. There's the financial aspect and then there's the clinical aspect. So if we break those two apart, you can start to see some of the challenges that MA payers are facing today. On the clinical side, basic demographic changes. Remember, this is a senior care product, right? The average age of the senior in America is getting older and older.

Rae Woods (06:38):
Yep.

Aaron Hill (06:39):
By 2032, for the first time in US history, the average age of a senior will be 75 or older.

Rae Woods (06:45):
Wow.

Aaron Hill (06:45):
That comes with more complex clinical conditions to manage and rising utilization costs.

Rae Woods (06:50):
That is one reason why the entire ecosystem is focused on sustainability. We're all grappling with those demographic changes. Tell me more about the financial side.

Aaron Hill (06:59):
So at the same time, we are seeing an increase in the complexity of clinical care for this population, we are seeing a decrease in the financial support from the federal government for MA payers over the last couple of years. So you combine those clinical headwinds with eroding financial support from the federal government, and you can start to see much more clearly why MA payers right now are really facing some challenges.

Rae Woods (07:24):
Yeah.

Sally Kim (07:25):
It's a lot of things hitting at once. So on top of those two already big things, clinical and financial, MA plans are seeing risk adjustment changes. V28 is in full effect right now. A lot of prior auth restrictions, especially at MA. And then we're seeing the most member switching in MA than we've seen in over a decade, and that makes it harder to manage a member's clinical outcomes.

Rae Woods (07:52):
And CMS isn't going to make it any easier on MA plans. CMS just announced in January that they're proposing to increase the reimbursement rate just about a 10th of a percent in 2027. Now that's still the proposed and not final rule, but I can imagine that with that news, we're only going to see more stories about plan exits. We're only going to hear more stories about things being harder for plans.

Sally Kim (08:15):
Yeah, I agree on the exits. I'm assuming the final notice will be higher because plans are going to be talking to policymakers right now. And even the fact sheet said that they're estimating a closer to a 2.5% increase, but to put this into context, even 5% increase for 2026 wasn't enough. So a 10th of a percent is definitely not going to be enough next year.

Aaron Hill (08:39):
And some of that animating energy is that the margins at the MA line of business have been higher than in other lines of business in the past. And so there has been a concerted effort across both the Biden and Trump administrations to find a closer alignment between the margins that MA payers are finding in that line of business with their other lines of business.

Rae Woods (09:01):
This pendulum swing is going to hit health plans really hard. And I want to make that clear to our audience. How big of a swing are we really talking about?

Sally Kim (09:13):
Yeah, there are actually numbers to back that up. So a few years ago, people saw MA as a attractive opportunity, right? And even then, it's not crazy margins, but around $34 per member per month. Now the margins are negative, at least in the last cycle.

Aaron Hill (09:30):
A great example of that is Humana, a very large national payer that got rid of their commercial line of business and leaned all in on senior care, especially into Medicare Advantage. And that's definitely a sign of how attractive the Medicare Advantage market has been in the past.

Rae Woods (09:50):
Or was, was, when they decided to go all in on senior care.

Aaron Hill (09:54):
Indeed. It was, yes. Now maybe we're facing a different situation.

Rae Woods (10:00):
So let's talk about how MA plans are then reacting to these headwinds. We already mentioned one, which is that they're getting out of the Medicare advantage market. What else are we seeing?

Sally Kim (10:13):
Plan strategies are starting to bucket out into two major categories. So the first is targeting high margin members, which could include MA exits, but also investing in SNPs. And then the other bucket is honestly just getting better at managing members.

Rae Woods (10:30):
You just said a word that I'm not sure that our audience will remember, which is SNP. And SNP stands for special needs plans. Aaron, remind us what those plans are and why we're seeing MA plans focus more on that type of offering given the current state of the market.

Aaron Hill (10:49):
Calling it a SNP means that you are a Medicare Advantage nerd. So everybody listening today has officially gotten some credit their Medicare Advantage cocktail parties by calling them a SNP. They're a unique category of Medicare Advantage plans. They're designed specifically for populations with complex health or financial needs, and there are three types. There are D-SNPs. Those are for dual eligibles, those seniors who are eligible for both Medicaid and Medicare. So that's an organizational challenge of merging those two monies. One is federal, one is state. That's a complex process. That population typically has more complex clinical needs as well.

(11:23):
There are C-SNPs. Those are special needs plans for seniors with 15 specific condition categories like chronic heart failure, diabetes. There's some severe mental illness in there. Those work out of the community, they're community special needs plans, and they tailor their provider networks and formularies around the particular clinical category of the member that they have. And then finally, there are I-SNPs, and those are for beneficiaries who are in or are expected to reside in an institution like a nursing home or a skilled nursing facility for at least 90 days. And those are the three types.

Rae Woods (11:57):
And if I can attempt to be an MA nerd, my understanding is that enrollment in these special needs plans is still growing. Why?

Aaron Hill (12:06):
100%. It has been the engine of Medicare Advantage enrollment growth over the last couple of years as we are seeing overall MA growth slow. Why? The biggest driver is just that those margins per member in SNPs tend to be a bit higher because the federal government reimburses at a bit of a higher rate for those members because of those complex organizational or clinical needs. And so there's more margin potentially to play with as a plan to do some innovative things with those members than there might be for an individual MA plan.

Rae Woods (12:40):
So the focus has shifted from kind of Medicare advantage for all comers into more of these special needs plans, but they are special, which tells me that succeeding in SNPs might look different than succeeding in general Medicare Advantage.

Sally Kim (12:58):
Yeah. I mean, these are sick folks with a lot of needs. You have to be really good at delivering managed care. And sure, that's true of MA in general, but even more true for SNPs. There are plenty of plans that say we don't have the capabilities right now to dive at this opportunity.

Aaron Hill (13:16):
Yeah. And just to build on that, it's a population that sometimes has been underserved. And we've seen a number of success stories in MA plans, operating SNPs where they go into communities that haven't been served well, who have a population with complex needs, and you bring resources to that population and their clinical outcomes start to improve very quickly. And so we've seen a model emerge. There are many, but that is one, where plans can find some success improving the clinical outcomes of a population. And with that, then the financial rewards, incentives around that.

Rae Woods (13:51):
So would you describe the state of Medicare Advantage as one of right sizing, pulling back, leaving some markets, investing in others, deeper focus in more intense care management for these special needs plans? And if we are in this moment of right sizing, is that ultimately a good thing, a bad thing?

Sally Kim (14:10):
It's hard to say good or bad, just because it depends who it is good or bad for, but I do think that we're going to start seeing a bifurcation into two groups of people succeeding in MA. We see a lot of the nationals because they have the scale, they can better target those high margin members and sometimes even absorb the losses of more expensive members. And then we'll also see a growing dominance of plans that are actually good at managing expensive patients. So Aaron just gave a really good example. I'm looking at provider-sponsored health plans more these days. I feel like they could also either do really well in MA or completely exit the market.

Aaron Hill (14:53):
If we come back to the Humana example, we can think about right-sizing in a very concrete way. So Humana leans fully into the senior care market a couple years ago, but beginning in 2025, they shed about 400,000 of those MA members that they had leaned so strongly into. Aetna, so the insurer associated with CVS, another 250,000 lives. Meanwhile, UnitedHealthcare added about half a million lives in 2025. But what happened? We see the financials of Humana and Aetna look pretty good in 2025 in that line of business. And as we've seen in the headlines recently, UHC, not so much. And so the right sizing is happening, and you can see it happening over the last year as these big nationals start to come up with a new pricing strategy that can meet the moment of the clinical challenges and the financial challenges.

Rae Woods (15:51):
So the question I asked was, is it a good thing? Is this right sizing a good thing? And it sounds like the answer is, well, it depends. It depends on how well you are actually managing the health of these populations under these financial headwinds, given that there is so much more care management involved, and there will be some winners and some losers.

Aaron Hill (16:12):
Yeah. I'm going to be contrarian and offer a glass half full picture of the MA market right now. There's clearly a shift, as we're all noting from enrollment growth where the conversation was around, will MA take over the senior care market to a shift now of is MA a viable product? And I think there's a different way to frame the shift that's happened over the last couple of years, which is that MA as a program is being pushed back to its roots, which was to incentivize private enterprise to come up with innovative solutions to bringing improved care at a competitive cost for a population that isn't always easy to manage.

(16:55):
What we can see in the approach the federal government has taken around the way they have changed incentives in the star ratings, the way that they have changed their benchmarking, we see a push on these private payers to come up with the innovative solutions that will meet the challenges of the moment that was the reason for the MA program at the very beginning. So I take a glass half full view of this, which is we are returning to the origins of MA. And this is a crucible now of challenges and pressures that will hopefully create some innovations in a market that is sorely in need of some.

Rae Woods (17:34):
So then what kinds of innovations are you watching for?

Aaron Hill (17:38):
First, better stakeholder relationships. Medicare Advantage payer relationships with their provider network have been notoriously bumpy in the past, but MA payers need their provider partners more than ever, an environment where margins are harder to find. We're seeing a general push toward a greater collaborative necessity among the stakeholders providing care to seniors in this market. The other innovation I expect to see is a push toward a greater use of technology, not necessarily for benefits for seniors, Apple watches, all this kind of fun stuff that is important, but the deployment of technology to really do the meat and potatoes of better managed care for seniors. And so I would expect those two areas to be sites of innovation moving forward in this program.

Sally Kim (18:27):
Yes. Aaron, I think that second one, technology completely agree with. We're seeing more interest from plans in AI and not necessarily in utilization management where you might expect, but even in member facing things, I think we no longer assume that seniors don't care about technology or self-service. So hopefully that will improve. And then to your point, Aaron, we're already starting to see less generous benefits in terms of Apple watches or gym memberships or grocery budgets, things like that. But we are still seeing more investment in nonmedical benefits and Part B buybacks. So folks are struggling to afford just regular daily expenses. So hopefully-

Rae Woods (19:14):
Yes.

Sally Kim (19:14):
The increase in Part B buybacks will help folks at least pay a little less in their premium.

Rae Woods (20:30):
I'm really interested by this concept of Medicare Advantage going back to its roots. Is part of that a shift away from the PPO towards more of an HMO model?

Aaron Hill (20:42):
I think that story is going to be complicated because yes, and as much as managed care has always been at the core of this program. And so in that respect, yes. And we are seeing, if you just look at the shifts in enrollment across MA plans, we are seeing a leaning into more and more HMO style plans because those are just structures where you can better manage utilization and costs in an environment where both are increasing. At the same time, MA plans are finding that there is a market for more expensive plans that offer a lot of benefits in a PPO style plan as well. And so you're seeing MA plans find both success right now, not zero premium plans, but more expensive premium plans, but there's still PPOs and they offer a lot of benefits, and it can be really a nice plan for seniors who can afford those. And then also a leaning into HMOs at the same time for those seniors who maybe don't want to spend as much on their premiums.

Sally Kim (21:42):
Aaron, what about those numbers that you pulled for that shift?

Aaron Hill (21:46):
Yeah, they're fascinating. So in 2024, the percentage of new entrants into Medicare Advantage who entered into a PPO plan was 73%. In other words, 73% of all new entrants into Medicare Advantage came in through a PPO. In 2025, it dropped to only 26%.

Rae Woods (22:06):
Wow.

Aaron Hill (22:07):
So a really big shift in the way in which MA plans are trying to structure their members moving forward.

Rae Woods (22:14):
There's a word that's coming to mind as you guys are describing the state of the MA market, and it's focus. It's this idea that Medicare Advantage is not a guarantee, it's not a side hustle. It might not be a PPO. It might not even be something that's for all seniors. So if MA plans are able to successfully focus their efforts, what does that practically mean for the business line?

Sally Kim (22:39):
Yeah, I mean, they're going to have to deliver better managed care as we've been talking about. And realistically, we're seeing that breakout into three categories. So first, investing more in tech, as we talked about, especially in AI, to help manage operating costs. The second is changing their benefits, A, so that it increases access to things that folks actually need to manage their care and potentially investing more in care management and drug spend management. And then lastly, some plans are trying to go about this using vertical ecosystems. So trying to have that holistic ecosystem that a senior can get all of their healthcare needs met from.

Aaron Hill (23:20):
It's about that drug benefit management side of things, because we know that there have been big changes to the Part D program, which have led to a lot of financial exposure for MA plans that they did not have in the past for member drug spend. So what we are likely to see coming out of this is much more cross benefit management experimentation where you bring the medical and the drug management parts of your operation, which have typically been very siloed in the past, together for a more holistic approach to managing the spend of a member. And I think that's an area where we will see a lot of innovation just out of necessity in face of the rising drug spend.

Rae Woods (23:58):
There's clearly been a lot of change in the Medicare Advantage market, and that change is something that is going to continue. We talked about what that means for health plans. We talked a little bit about what that means for providers and the fact that providers and plans need to partner together. What does this mean for patients?

Aaron Hill (24:14):
It's going to be a more challenging environment for patients. On the one hand, as Sally mentioned, the benefit design is changing and it's changing to reflect the needs of consumers in 2026, top of mind affordability. So we're seeing a shift from benefits that offer added experiences like gym memberships or home technologies. The big move right now in benefit design is Part B buybacks, which just means that the MA plan covers some of your Part B spend. That's about affordability. Right. And I think we're seeing now a benefit design shift toward matching what is the reality on the ground for seniors, which is their cost of care and their healthcare expenses are going up faster than their Social Security benefits are, for example. And so there is now a leaning into making care as affordable as possible for seniors, but it's hard and it's going to be hard moving forward for a lot of seniors to maintain the level of care that they've been receiving in the past.

Sally Kim (25:14):
Yeah. The good news for patients would be that there still is quite a few options across the country if you do want to go into MA and pick an MA plan. The downside is if your MA plan is leaving your market, you're going to have to change plans. And then the big satisfaction detractor that we've been hearing is people love their grocery budget that they get from MA. Those perks, especially when it's a dollar amount, and plans have been very generous with those in the past just trying to grow their membership.

Rae Woods (25:47):
Yeah.

Sally Kim (25:47):
We're already seeing that amount to diminish and people really feel that in their day-to-day.

Rae Woods (25:54):
If I reflect on the last decade in Medicare Advantage, I would describe it as a bit of a volatile market. Peer into your crystal ball for me a little bit. Do the changes of the last couple years, maybe even couple months, couple days, represent what will become a new steady state for Medicare Advantage, or are there signs that will continue to feel, that plans will continue to feel some volatility?

Sally Kim (26:24):
I think every market is volatile. Actually, I spend more time working in employer-sponsored insurance, and I would argue that that market is more volatile. That being said, from working with plans, they're very good at adjusting. They're very good at pivoting. So I do think even this market will re-stabilize.

Aaron Hill (26:43):
Agreed. I totally agree with Sally. There are challenges on the horizon, but those challenges are known. I doubt if there will be big surprises. And so it's a challenging market, but not a surprising market, I would say, moving forward over the next couple of years.

Rae Woods (26:56):
And I appreciate that you're saying that plans are savvy, plans adjust, plans change their strategies, they adjust the way that they implement those strategies, and that's what we are seeing on the ground right now. And still, those moves have ripple effects on the rest of the market. So as we close out this conversation, what are the ripple effects that these shifts, these changes will have on the providers, on the employer market, even on traditional Medicare?

Sally Kim (27:22):
I mean, we're already hearing from providers that this is impacting them and that MA plans are getting harder to work with. I hope this gives some context as to why it feels that way. It is not just that they're trying to make your lives more difficult, but they're being pushed by purchasers, by CMS to become more efficient. And I do think that plans will then push providers to also be more efficient.

Aaron Hill (27:50):
I think we have to recognize moving forward that MA plans are under as much pressure as every other healthcare organization is these days. I think we will see interesting things happening in the Medicare supplementary insurance market because we're going to start to see members go to traditional Medicare to find their care as MA becomes less frequently an option for them. So I would expect some ripple effects over in the supplemental market on that side of the fence. And the other one I would flag is the biggest rate of growth of any part of an MA budget right now is drug spend. So I would expect to see some ripple effects around how drugs are prescribed, how they are situated within the broader care context for a senior. And I would flag those two.

Rae Woods (28:38):
Well, Aaron, Sally, thank you so much for coming on Radio Advisory. Sounds like we should probably plan for another conversation to talk about employer-sponsored insurance.

Sally Kim (28:48):
Yes. Happy to always come back.

Aaron Hill (28:51):
It's a pleasure to be here. Thank you.

Rae Woods (28:57):
One of the things that stuck with me from this conversation is the idea that success in Medicare Advantage is going to require focus. And Sally actually followed up with me after this conversation to remind me that Advisory Board just launched a brand new tool in the last couple of weeks called the Health Plan Market Explorer Tool. I absolutely want you to check this out. The tool shows Medicare Advantage enrollment numbers. It shows star ratings. It shows MLR. This is something that is really helpful for providers and plans. We've already heard from providers who are using it to compare MA plans in their market, understand who's in and what their quality ultimately looks like, and plans love it because they can see how their competitors are doing. I've added that link to the show notes because remember, as always, we're here to help.

(30:14):
New episodes drop every Tuesday. If you like Radio Advisory, please share it with your networks. Subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. See you next week.