Red ink at Minnesota Blue Cross spells more Medicare Advantage troubles ahead

Surging medical costs drove big financial losses last year at Blue Cross and Blue Shield of Minnesota and prompted the Eagan-based health insurer to set aside $150 million for ongoing cost challenges, particularly in the Medicare program.

The results, which were released Wednesday, April 1, suggest another turbulent open enrollment season could be coming this fall for seniors.

Health insurers across the country were already raising alarms over the prospect of diminished coverage next year, including benefit reductions and higher premiums. That’s because federal officials in January proposed not raising 2027 payment rates to private Medicare Advantage health plans.

At Blue Cross, the red ink won’t drive any midyear changes in rates or benefits. But the ongoing losses could foreshadow reductions in Medicare benefits for 2027, similar to when the insurer decided late last year to limit fitness center options in its popular SilverSneakers program.

That cost-cutting move, which angered seniors, came as Blue Cross braced to enroll many of the more than 150,000 seniors who were losing coverage due to the financial failure at Minneapolis-based health insurer UCare.

“This shows that the difficulties in the Medicare market were not unique to UCare,” said Joshua Haberman, owner of the Alexander & Haberman insurance agency in Bloomington. “It’s a sign of continued instability.”

Medicare Advantage is the privatized version of the federal government’s Medicare health insurance program for seniors and people with disabilities.

Roughly half of all beneficiaries opt for Advantage plans, which typically offer extra benefits at relatively low premium prices. However, patients can face limits in hospital and clinic choices.

In 2025, UCare was the second-largest Medicare Advantage health insurer in Minnesota when it reported a staggering $504 million loss on operations the previous year.

The insurer, which is shutting down completely, first announced last September that it would exit Medicare Advantage for 2026. Other carriers left certain counties in Minnesota, as benefits with many health plans became less generous.

Amid the disruption, the parent company of Blue Cross of Minnesota picked up more than 75,000 enrollees from December to February, according to Medicare Market Insights, a data website run by Telos Actuarial in Omaha. The increase bolstered the insurer’s position as the state’s largest Advantage plan provider.

That enrollment win, however, might have a “winner’s curse” in financial terms. Last week, Minnesota Blue Cross disclosed that in late 2025 it established a $150 million fund to cover expected losses, particularly on Medicare premiums for 2026.

“Based on anticipated enrollment shifts, expected medical costs and pricing for certain Medicare products, management determined that future premiums were insufficient to cover projected claims and related expenses,” the insurer said in a regulatory filing on Wednesday.

Similarly, going into 2025 UCare saw significant membership increases, which one market watcher later described as “catastrophic growth.”

Blue Cross, however, is a bigger and more diversified company. It sells employer-sponsored health plans in Minnesota in addition to Medicare coverage and Medicaid health plans for lower-income residents. UCare only sold health plans for people with government-funded benefits.

Last week, Blue Cross reported a $353 million operating loss on about $10.4 billion of revenue in 2025. The loss figure included the reserve fund for cost overruns.

Overall, the insurer paid $9.8 billion for members’ medical and pharmacy services in 2025, an increase of $1.7 billion, or 21%, compared with spending on claims the prior year.

Blue Cross attributed the loss to “unfavorable performance” in federal and state government health programs. Contributing factors included increasing costs from hospital inpatient services and more use of costly specialty medications, such as GLP-1s for diabetes and weight loss.

Strong investment earnings made up for the operating loss, resulting in positive net income of $83 million.

“While financial resilience gives Blue Cross some flexibility to navigate volatility, long-term stability requires a path where payments coming in truly cover the actual cost of care,” Blue Cross CEO Dana Erickson said in a statement.

In January, the federal government published preliminary information that said payment rates for Medicare Advantage insurers will be relatively flat in 2027 — an announcement that drove big stock price declines among the nation’s large publicly traded insurers. Investors had hoped for something more like the government’s 5% rate increase the previous year.

At Minnesota-based UnitedHealthcare, the nation’s largest Medicare Advantage health insurer, executives warned of the potential for reduced choice, reduced access and affordability challenges for seniors in 2027.

Final Medicare Advantage rates could be released as early as this week.

“If the 2027 payment rates fall short in addressing the harsh realities of skyrocketing medical prices in senior care, we will need to take a hard look at what changes to consider within our Medicare portfolio,” Blue Cross said in a statement to the Minnesota Star Tribune.

While tighter funding for Medicare Advantage insurers can reduce benefits for seniors, some have argued that the government has overpaid private Advantage plans for many years, particularly through “risk-adjustment” formulas that are meant to reward insurers for covering people with complex health care problems. A series of Biden administration reforms, which were extended by the Trump administration, have started to make a dent in the alleged overpayments, according to a March analysis from the Medicare Payment Advisory Commission.

The amount of money at stake is still large enough that Maya MacGuineas, president of the Committee for a Responsible Federal Budget, referenced the Medicare Advantage controversy in congressional testimony last month.

“Health care represents the single largest source of waste, fraud and abuse among government programs, and the greatest opportunity for win-wins that can lower costs for households and taxpayers alike,” MacGuineas said.

Insurers deny there are overpayments. They stress that enrollment growth in Medicare Advantage plans over the years shows how seniors like the coverage, which often includes not only fitness center benefits but also help with vision and dental care.

The proposed payment rates for next year “could result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026,” Chris Bond, a spokesman for AHIP, the trade group for health insurers said in a statement.

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