Medicare Advantage (MA) has been a consistent earnings booster for insurers, but recent challenges in this space are likely to ding profitability, according to a new report.
Analysts at AM Best found that elevated utilization trends beginning in 2023 led to a $5.7 billion underwriting loss in 2024 for MA plans, while insurers reported gains in the previous five years. Underwriting gains in MA accounted for 40% of total gains from 2019 to 2022, but that dropped to 20% in 2023.
The report found that close to three-quarters of companies with a significant concentration in MA reported underwriting losses in 2024.
“Medicare Advantage enrollment and premium continue to grow as more people are aging into the program. However, plans have experienced an increase in utilization and medical trends that have persisted longer than expected,” said Jason Hopper, associate director for industry research and analysis at AM Best, in a press release.
“Changes to the risk-adjustment payment model by the Centers for Medicare and Medicaid Services, as well as lower Star Ratings across the industry, also have contributed to recent underwriting losses," Hopper said.
Another challenge impacting profitability in the MA space is star ratings performance, according to the report. The Centers for Medicare & Medicaid Services has tightened requirements under the star ratings and added additional metrics, which has had a far-reaching effect on the performance of multiple insurers.
The report noted that the number of companies with contracts having four or more stars decreased by 25% between 2022 and 2025, with the largest declines seen for publicly traded insurers and Blue Cross Blue Shield plans.
Bridget Maehr, director at AM Best, said in the announcement that these pressures are likely to continue for the near future.
“Profitability will most likely continue to be under pressure due to the following reasons: utilization and medical costs are up; medical inflation consistently outpaces the consumer price index; individuals are receiving more medical services, and some treatments are very expensive, such as gene therapy," said Maehr. "AM Best expects health insurers to evaluate their position in the Medicare Advantage market for 2026."