America’s Seniors Are About to Pay a High Price for Wall Street’s Growing Disenchantment with Medicare Advantage

Over the past few days, both CVS/Aetna and Humana admitted to Wall Street that their Medicare Advantage plans are not nearly as profitable as those insurers had predicted a year ago. As a consequence, hundreds of thousands – and probably millions – of seniors and disabled people enrolled in Aetna’s and Humana’s plans may soon wish they had never heard of Medicare Advantage.

Aetna president Brian Kane probably wishes he had never heard of Medicare Advantage, either. The poor guy got canned in a very public way yesterday, presumably for overseeing the payment of too many Medicare Advantage claims during his short tenure at Aetna. His boss, CVS CEO Karen Lynch, said during the company’s second-quarter earnings call with investors and Wall Street financial analysts that Kane, who joined the company just last September, was leaving Aetna “immediately.”

As sorry as I am for Kane, I am much more concerned about the health and well-being of the 4.3 million people enrolled in CVS’s MA plans and the 6.2 million in Humana’s plans. Sadly, most will find they’re trapped in a circle of hell created by the insurance industry, unable to stay in their current Medicare Advantage plan but also unable to return to traditional Medicare because of what for them will be unaffordable Medicare supplemental policies (most of which are sold by the same big insurers that sell MA plans). Seniors have six months from the date they’re eligible for Medicare to buy a supplemental (Medigap) policy to cover out-of-pocket expenses. If they’ve been enrolled in an MA plan longer than six months, they’ll have to go through medical underwriting. That means that if they’re being treated for much of anything or, God forbid, have a “preexisting condition,” they’ll have to pay an arm and a leg for Medigap policy.

Humana said last week it planned to jettison “a few hundred thousand” of its Medicare Advantage enrollees that have become unprofitable. CVS says it will get rid of about 10% of its MA enrollment, which would be around 430,000 of America’s seniors and disabled people. Most of those folks likely will be able to enroll in another insurer’s MA plan (although the options will be more limited in many counties), but they likely will find that their premiums will be higher, their benefits skimpier, and that some of their preferred doctors and hospitals are not “in-network.” As HEALTH CARE un-covered has reported, a growing number of physician practices and hospitals are now refusing to take Medicare Advantage patients.

It’s important to point out that Humana and CVS/Aetna are still making very nice profits, even on their MA businesses, but Wall Street doesn’t like any part of a company to be less profitable than they had been told to expect. So when investors send a message – by dumping their shares – the C-Suite listens. Executives swing into action to try to staunch the bleeding, especially considering that most of their compensation is paid in stock.

Both Humana and CVS have been in the Wall Street dog house for months now because of their lackluster MA operations. Humana’s shares have lost an astonishing 33% of their value since last October. CVS/Aetna’s shares are down more than 32% since just the first of this year. I handled financial communications for Cigna for 10 years and I can’t recall such a long stretch of decline. But when Cigna shares did take a big hit after a disappointing quarterly earnings report, it would be all hands on deck to turn the ship around.

At Humana and CVS/Aetna, some of the hands will be hard at work identifying unprofitable enrollees to dump. Other hands will turn to “utilization management” (a.k.a. medical cost management). That means the companies likely will ratchet up prior authorization requirements, refuse to pay claims they previously would have paid (making greater use of AI in both endeavors), and make enrollees pay more in premiums and out-of-pocket requirements.

Both companies are finding out that the big bets they placed on MA in years past are not paying off. Expecting an ongoing gravy train from the government, Aetna spent heavily on MA marketing last year and saw its enrollment increase by 33% between December 31, 2022, and June 30, 2024, from 3.3 million to 4.3 million. Aetna will be trying to run off many of those 1 million new enrollees before the end of this year.

Humana also bet big and, it seems with hindsight, recklessly on MA. On February 23 of last year, it announced it was getting out of the employer-sponsored health insurance business entirely so it could focus exclusively on Medicare Advantage and other taxpayer-funded programs. Wall Street didn’t balk at that decision initially but I suspect many investors and financial analysts are now questioning the sanity of the company’s leadership.

Company executives have tried to reassure investors they have a handle on all the levers at their disposal to get their profit margins back to levels deemed satisfactory to Wall Street. They do the reassuring in language that most of us couldn’t make heads or tails of, like this from Humana CFO Susan Diamond during the company’s second-quarter earnings call on July 31:

On the inpatient (hospital admissions)…we do within our utilization management programs, have what we call a frontend review process. So we are reviewing those authorizations in real-time as they come in for things like medical necessity and site of service effectively…There is also activity that we do after the claim comes in, which we call a postpay review, where there are some incremental opportunities to just review, again the more specificity on that claim to make sure it's appropriate and we get value from both sides of that.

What this means is that doctors will find more of their decisions being second-guessed by Humana beancounters, they’ll encounter more questions about the necessity of a proposed treatment,  medication or hospital admission, and they’ll see more of the claims they file being paid only in part if at all. If all that makes doctors’ lives more miserable, if it means some patients won’t get medically necessary care, so be it. In Medicare Advantage, Wall Street will not be happy until profit margins start growing again, and nothing – nothing – is more important to the CEOs and CFOs of these publicly traded companies than Wall Street’s happiness.

PS: Yet another big Medicare Advantage player, Centene, says it, too, will be cutting thousands of its enrollees adrift as it exits counties in six states. Nearly 40,000 seniors and disabled people will be affected.