Medicare Advantage shows large profit advantage that new CMS rules look to cut

by Steven A. Morelli

Medicare Advantage plans have a significant advantage over other health insurance — profit.

MA carriers have reported profit margins more than double that of insurers in the individual/non-group, the fully insured group/employer and the Medicaid managed care markets, according to an examination by the Kaiser Family Foundation.

The study examined profit margins of carriers in 2021 (the latest full year available) and found the pandemic suppressed the gross margin per enrollee over the previous year, but MA carriers still maintained a healthy margin over the other markets.

The year was a rough one, but MA plans regained profitability by the end of the year to pre-pandemic levels while other markets floundered.

“Medicare Advantage plans have both higher average costs and higher premiums (largely paid by the federal government), because Medicare covers an older, sicker population,” according to the report. “So, while Medicare Advantage insurers spend a similar share of their premiums on benefits as other insurers in other markets, the gross margins — which include profits and administrative costs — of Medicare Advantage plans tend to be higher.”

The profit margin has been wide enough for carriers to be worried about their medical loss ratios. If the carriers’ medical costs fall below 85% of premium income, they risk penalties, including termination from the program.

“To avoid such a risk, some Medicare Advantage insurers with loss ratios below 85% may take this opportunity to offer new or more generous extra benefits, such as over-the-counter allowances, meals following hospital stays or transportation, in addition to gym memberships and dental, vision and hearing benefits that are offered nearly universally to help retain and attract new enrollees,” according to the report.

MA is popular and becoming more so,