Growth in Medicare Advantage will increase risks of lower revenue, Moody’s says

Hospitals will face rising risks to reimbursement, particularly from an uptick in denial of claims, as older Americans increasingly opt for health coverage under Medicare Advantage plans rather than traditional Medicare, a Moody’s Investor Service report said.

Moody’s expects that by 2030, when all baby boomers have turned 65, about 60% of Medicare enrollees will be covered by an MA plan. The shift to MA will increase health care providers' reliance on large commercial insurers, elevating the insurers' influence and negotiating strength. New rules from Centers for Medicare & Medicaid Services have the potential to mitigate some of the challenges posed by MA growth.

• Risks to hospital revenue will rise with MA expansion. MA plans, which are managed by large insurers, present greater challenges to revenue capture than traditional Medicare, as hospitals cite an uptick in claim denials and delays in care authorization. Hospitals with broad scale and more essential roles will be best positioned to counter these issues. However, hospitals of varied sizes and types are terminating MA contracts.
• Declining profitability of MA plans presents an additional threat to hospital revenue. Insurers have begun to see a decline in profitability from MA plans, which have been a valuable source of earnings for them. To help offset lower MA earnings, insurers could, in addition to service denials, turn to reducing costs by restricting provider networks or becoming more aggressive when negotiating MA and commercial rates.
• Hospitals' reliance on the largest insurers will grow, giving insurers greater negotiating power. UnitedHealth, Humana, Aetna and Elevance (formerly Anthem) now cover about 65% of MA patients, in addition to dominating the commercial market. Hospitals will thus become increasingly reliant on these big payers. Payer positioning in contract negotiations will further challenge health care providers, especially in markets dominated by one or two insurers.
• New rules from CMS have the potential to alleviate challenges posed by MA. CMS rules implemented in January 2024 seek to ensure that MA plans provide access to care in line with traditional Medicare. If adhered to, the rules would likely alleviate some of the risks to revenue presented by MA expansion, including pre-authorization for treatment and downgrading of admissions to observation stays.