Medicare Advantage medical costs dominated fourth-quarter discussions between health insurers and investors, after higher healthcare utilization popped up like weeds in some segments of each payers’ business.

Yet health insurers’ forecasts for how higher utilization will affect their performance in 2024 are night and day.

Some payers controlled medical costs more effectively than analysts expected, said rising spending shouldn’t affect their outlooks for this year or guided to a stronger 2024 than previously forecast. That group includes UnitedHealth, Centene, Elevance and Cigna.

However, Humana and CVS cut their 2024 earnings outlooks on the heels of last year’s results, and said they expect elevated medical costs to continue this year.

Humana’s outlook is especially grim: The Kentucky-based payer’s earnings expectations for 2024 came in about half as low as analysts had expected.

Even payers that emerged from 2023 with their financial outlooks unscathed said they plan to cut benefits or raise premiums this year. The plan redesigns are to protect margins in MA — a business that historically generates significant profits, but is facing challenges that threaten to kill the golden goose.

Why didn’t payers see medical costs coming?

MA plans have skyrocketed in popularity. More than half of Medicare seniors are currently signed up for the plans, attracted by benefits like lower monthly premiums and dental and vision coverage. An onslaught of marketing by insurers didn’t hurt, either, as payers jockey for members. Competition is fierce, as MA margins per enrollee can be twice as high as those in other types of plans.

Yet, more members are creating more problems for some insurers because of rising medical utilization. Starting in the second quarter last year, seniors sought out medical care they had delayed during the COVID-19 pandemic, hiking insurers’ spending.

For example, CVS added 800,000 MA enrollees for 2024, mostly nabbed from other payers after CVS aggressively expanded its benefits. But that’s coming back to haunt the Rhode Island-based insurer, which cut its earnings per share outlook for this year due to high medical costs.

There are a few potential explanations for what’s driving the elevated utilization, and why insurers might not have properly forecast the uptick in trend, according to J.P. Morgan analyst Lisa Gill.

Enrollees in MA tend to be healthier than those in traditional Medicare. But as more seniors join MA, the program’s risk population could be skewing sicker, Gill wrote in an early February research note. Insurers could have missed early warning signs of higher acuity as seniors avoided doctor’s offices during the pandemic.

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