The Medicare Bubble Has Burst…


The once lucrative Medicare Advantage business, which has been a significant profit driver for health-insurance giants, is experiencing a decline in profitability due to policy changes and increased medical costs.

Key points:


  • Medicare Advantage, a program where the government pays insurers to manage seniors’ care, has seen a drop in profitability due to policy changes and increased medical costs.

  • CVS Health is one of the hardest hit, with its Aetna unit experiencing a $900 million increase in medical costs due to underestimating the cost of insuring new members.

  • Medicare Advantage-focused insurers have underperformed the stock market this year, with shares of companies like CVS and Humana down significantly.

  • The program is expected to continue growing, with annual spending projected to approach $1 trillion by the start of the next decade.

  • Insurers are planning to exit some counties and cut back on benefits to boost margins.


Potential implications and what could go wrong:


  • The shift from growth to profits could lead to a reduction in benefits and services for seniors.

  • The industry’s efforts to sway public and policymakers’ opinions through campaign donations and lobbying could result in policy changes that favor insurers over beneficiaries.

  • The decline in profitability could lead to a decrease in competition, potentially leading to higher costs for seniors.

  • The focus on profit over membership could result in a decrease in the quality of care for seniors.

  • The decline in profitability could discourage further investment in the program, potentially limiting its growth and effectiveness.

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