At base, many national players just totally botched running a healthcare business
A number of readers have asked me to put the national insurer meltdown in context. What explains the meltdown and how could insurers go from the envy of investors to hitting nearly rock bottom? My quick answer is that it is two-fold. First, some outside forces came to bear that chopped away at insurer margins. But second, and perhaps more important, most of these national health companies got greedy and lost their financial discipline.
Outside forces
The outside forces are a bit easier to articulate. The outside forces are both utilization increases and some government actions.
Utilization and inflation hikes – Insurers had it good financially during the COVID pandemic. While they had the expenses of COVID treatment, regular healthcare utilization plummeted, especially in 2020 and 2021. Since the end of the pandemic, we have seen huge spikes in utilization of healthcare services. The spike largely is related to recovery of utilization from the pandemic. Statistics show that some services have yet to recover to pre-pandemic levels. But there is a somewhat unexplained utilization hike occurring as well. Some of it can be traced to aging, behavioral health utilization, and new drugs, especially specialty, medical, and GLP-1 weight-loss drugs.
Inflation in the healthcare sector also returned to its robust nature, usually outstripping regular inflation as well as wage and gross domestic product (GDP) growth. The combination of inflation and utilization trends has meant growth in various healthcare business lines of between 6% and 9%. This is projected to slow but should remain north of 5% annually through 2033. This will push healthcare spending as a percentage of GDP over 20%. I do think we will continue to see trends in employer coverage to be higher than other lines of business.
Government actions – Government actions certainly played a role as well. Most broadly, we are seeing both state and federal actions which severely limit the use of utilization management (UM) and prior authorization (PA). State laws are clamping down on PA in Medicaid and commercial risk plans. The Centers for Medicare and Medicaid Services (CMS) has been busy doing the same in Medicare Advantage (MA), especially in 2024 when it dictated health plans must follow the traditional fee-for-service (FFS) program rules.
There, too, have been a series of rate impacts, other regulatory actions, and eligibility changes in the government programs arena. CMS phased in a new risk adjustment model, which will reduce revenue to MA plans by over 7% from 2024 to 2026. In MA as well, CMS tightened performance standards in the Star program coming out of COVID. In Medicaid, the return of redeterminations post pandemic caused rolls to contract but plan risk to increase. While states were generous during the pandemic on rates, extra money from the feds dried up and plans now see a mismatch between costs and rates.
Government actions will continue to come, in the form of the following:
- Risk adjustment audits and other reforms in MA that will pare revenue further.
- The budget reconciliation bill will reduce the rolls in Medicaid further. This will continue if not heighten the mismatch between risk and rates.
- The contraction in the Exchanges due to the budget bill, expiration of enhanced premium subsidies, and a new enrollment restriction rule will mean fewer enrollees and increased risk. While premiums will rise to offset some effects, the Exchange world still becomes financially much less stable.
The rising utilization, PA and UM restrictions, and other government actions have also unsettled the employer and commercial markets. Lower revenue in the government program sector has providers demanding higher rates from employers. And the old world of simply passing through utilization and cost trends to employer premiums is ending, too. Employers are demanding much greater accountability from health plans that administer both self-insured and risk insurance.
Health plans missed the financial mark
(Note: A description of the big seven publicly traded healthcare companies with insurers is at the end of the blog.)
In my view, the biggest reason for the meltdown was health plans’ overzealousness on growth and severe lack of financial discipline. Almost without exception, national health plans set aside caution and had a substantial lack of operational and fiscal focus. Many on the inside of health plans would argue that they were in uncharted waters with the COVID pandemic. I don’t discount some of this. It was hard to navigate some of the uniqueness of the COVID pandemic, the government response, and what would occur coming out of it. Still, the health plans and the investment community ignored many warning signs. A health insurer stock frenzy developed at the beginning of the decade and plan executives simply did not want to (or understand they had to) moderate outlooks.
Underscoring this are the following:
- Generally, stock prices have dropped considerably from their peaks for the seven big entities – UnitedHealth Group, Elevance Health, CVS Health, Centene, Humana, Molina, and Cigna.
- All but Cigna have had to substantially change or pull back on guidance.
- UnitedHealth Group, CVS Health, and Humana all made major leadership changes.
Where did they go wrong?
Medicare Advantage: MA growth continues strong, although it has slowed down a bit. The growth is very much tied to the fact that MA provides a huge value proposition compared with the antiquated traditional FFS program. MA growth was 11 million, or 46%, from January 2020 to February 2025. The large national MA plans rode the wave of this huge growth coming out of the last decade and refused to recognize the expansions they were making were unsustainable. Until more recently, each year they added benefits, expansion counties, and marketing despite the warning signs below.
There were clear warning signs. The big ones were the following:
- Star performance peaked in 2022, and we saw three successive years of lower Stars performance since then. Plans, including many of the national ones, lost their Stars edge and declined markedly yet they continued beefing up benefits and enrollment.
- The new v28 risk adjustment model was introduced in 2024 rates. It was clear the model would have huge impact on overall revenue to plans. In 2024, plans saw a real decrease in rates with the phased impact of v28. The same held true for 2025. Yet it took some national MA plans until 2025 bid submissions to pull back on benefits and expansions. Others have yet to contract.
- The new 2024 PA limitation announced in late 2022 and finalized in 2023 should also have been a wakeup call to plans as well. There was some evidence that the new rules were increasing inpatient and post-acute care.
- Even as lawmakers and regulators were raising concerns with risk adjustment, some of the big players continued aggressive risk adjustment practices. While they have seen lower revenue due to v28, additional losses could occur through risk adjustment data validation (RADV) audits in the next several years. The Trump administration announced it would seek to audit every contract for every payment year.
- And large players also entered into questionable marketing agreements with brokers and third-party marketing organizations (TPMOs). Several plans are now being investigated for what might be illegal agreements that steered members to their plans through payments to the marketing entities. This continued despite several high-profile reforms, including CMS seeking to stop the marketing agreements. The CMS effort, though, was stopped in court.
Yet, the national MA plans did not respond to the warning signs and react until it was too late.
- United and Elevance generally remained bullish on MA up until recent poor financial performance was revealed. While they did contract some offerings in 2025 (United impacted about 250,000 members in 2025), only in the last few weeks did they sound the alarm financially. United now plans to shed 600,000 lives in 2026.
- Humana waited until 2025 to curb benefits, products, and geographies.
- CVS waited until 2025 and seemingly went all in for 2024 despite signs and apparent problems at Aetna. In 2024, it had growth numbers that exceeded or matched bigger competitors (United and Humana). January 1, 2023, enrollment was about 3.15 million. On January 1, 2024, it was 3.92 million. It added almost 500,000 more during 2024.
- Centene did contract some in 2024 given financial woes, but apparently not enough. It contracted again in 2025.
- Molina did not contract until 2025 as well.
Cigna seemingly was prescient (although I think MA can still be a great investment over the long term). It shed its MA line and sold it to mutual Big Blue Health Care Service Corporation. Ironically, it added about 100,000 lives between the announcement of the sale (in early 2024) and the close date (in early 2025).
Medicaid: Most of the national plans have major Medicaid lines of business, especially Medicaid-dominant Centene and Molina. The financial erosion in Medicaid was somewhat more out of plans’ control. Plans did lobby hard for rate hikes during the massive growth in the Medicaid rolls when eligibility rules were loosened for COVID. They argued risk was rising. But once normal enrollment rules came back in, they may have underplayed the impact of declining enrollment. They argued risk was rising but have had less success gaining rate hikes because of evaporating Medicaid reimbursement at the state level.
At the same time, plans invested heavily in expansion throughout the country. Now, more lives will be stripped from the program due to work requirements, provider tax reform, and other enrollment and eligibility restrictions. Did they grow too much — ushered on by what were temporary rules expanding growth?
Exchanges – As with Medicaid, plans are likely less responsible. But many of the national players and Exchange-only Oscar Health expanded dramatically during the Biden years in the program as enrollment grew, risk went down, and premiums stabilized or also declined. Many are now seeing utilization and costs increasing dramatically. With the sunset of enhanced premium subsidies, enrollment will drop and risk and premiums rise. This will force many to rethink where they serve the Exchange population or pull out completely. Should those decisions have come sooner?
Employer and commercial: National plans even missed some warning signs in the self-insured employer and commercial risk world. Employers have been demanding more transparent arrangements and health plans have been slow to respond. Big plans have made some changes but largely held on to the old ways of administering self-insured products.
Employers, too, are frustrated by ever-rising premiums and costs. Consequently, some employers are in the early stages of redesigning and breaking up product offerings to their employees (e.g., contracting separately for pharmacy and medical or direct contracting with some providers). This will be a long process, but this could impact the amount of revenue to plans and client bases.
Longer recovry time
The current trends, including the budget reconciliation bill, likely would have meant further retrenchment by the big national players in all lines of business. But it is equally true that the lack of financial discipline by most of these plans in the last several years complicates their recovery. Health plan operations and big insurer stocks will take some additional time to truly recover. On Thursday, I will talk about what to expect in MA for 2026.
#healthplans #margins #medicareadvantage #medicaid #managedcare #exchanges #employercoverage #commercial
The Big 7 Explanation:
UnitedHealth Group, the biggest insurer and vertically integrated healthcare company. Its services entity is Optum, which includes pharmacy benefits manager (PBM) OptumRx. United’s insurer is diversified across multiple lines of business.
Elevance Health, a vertically integrated healthcare company as well. Its services entity is Carelon. Its insurer is also diversified across multiple lines of business.
CVS Health, a vertically integrated healthcare company with CVS Caremark PBM, CVS pharmacies, and insurer Aetna, among other assets (including providers and clinics). Its insurer is diversified across multiple lines of business.
The Cigna Group, a vertically integrated healthcare company including its growing service entity, Evernorth. Within Evernorth is Express Scripts PBM. Cigna is dominant in commercial coverage and shed its Medicaid and Medicare assets.
Humana, MA dominant insurer with some growing Medicaid lives. It has largely divested its commercial line. It has some vertically integrated assets, including providers and long-term care.
Centene, a Medicaid dominant insurer with MA and Part D lines of business.
Molina, a Medicaid dominant insurer with some MA business, largely Special Needs Plans (SNPs).
— Marc S. Ryan
