Zigging when others zag

Now may be the time to lean into Medicare Advantage

I wrote this post as a guest writer for Health Tech Nerds. You can read it there (see link) or read below.

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I swore to myself that I would never write about Medicare Advantage (MA) ever again. Why? Having never worked in an MA plan, I don’t feel necessarily qualified, nor am I professionally focused on operating in MA these days. But a few folks have been pushing me to write because they have concluded that many of the analyses of MA trends are missing the mark, MA remains an important program for the future of healthcare transformation in the US, and October 15 marks the start of open enrollment - arguably the most important time for the industry. So I am writing about MA again. But this is the last time.

Key points:

Calls for the demise of MA feel short sighted. For organizations who can afford to invest for the long term, it may be the most attractive opportunity in years to double down on smart growth strategies and support those plans who are investing for the future.

1. It is true that MA is facing some of the most difficult market dynamics since its early history

2. …however, MA plans systematically under-anticipate their competitors actions, which means they underestimate how members can move into their own plans

3. …and, monthly enrollment growth rates and conservative assumptions for open enrollment suggest that MA enrollment could grow in 2026

4. …and, the demographic and regulatory fundamentals for growth from 2027 and 2028 are strong

It is true that MA is facing some of the most difficult market dynamics since its early history

I love looking at long duration charts because short term trends often get totally absorbed by compounded growth. History becomes obscured by recency bias and the power laws that hides the past. When most people think about MA growth, the orientation is generally baselined by this famous bar chart from Kaiser Family Foundation.

Source: KFF

Unrelenting growth. A chart almost as impressive as UHGs stock price from 2011-2024.

Source: Yahoo Finance

But this picture erases the first 20 year history of MA, which had a much more tumultuous boom/bust cycle, including 5 year periods of growth that were much faster than has been experienced in the last 20 years.

Source: Milbank Quarterly

As you can see, Medicare Part C (what is now branded as Medicare Advantage) grew slowly for many years, exploded from 1993-1999, only to completely unwind from the benefit reduction mitigation steps that MA plans took in direct response to the Balanced Budget Act of 1997. It wasn’t until further regulation re-invigorated the program in 2003 with the Medicare Modernization Act, supporting the growth we have seen to date (and turbocharged by the baby boomer generation aging into Medicare).

Fast forward to 2025 and one could argue, and many are, that regulatory and demographic shifts put us in a moment not dissimilar to the late 90s.

• Revenue has been cut in the form of v.28 risk adjustment changes and higher thresholds to achieve Star Rating quality bonuses

• Medical costs have been squeezed as a result of rules such as the Inflation Reduction Act and public and regulatory scrutiny of utilization management has limited levers to reduce costs

• Administrative compliance costs have increased to address sloppy practices in sales & marketing, prior authorization, and risk adjustment.

• Meanwhile post-pandemic, healthcare utilization and prices are increasing at unrelenting rates, often supercharged with AI-powered revenue cycle tools the likes of which MA plans have never encountered.

• Added to all this, the court of public opinion has never been more negative for insurance companies, hospitals have the market power to completely pull out of networks, and the media headlines are ominous.

In many ways, it feels like the perfect storm has hit the MA program in a way that could unravel enrollment away from privatized Medicare coverage.

Then we saw a press release that seemed to say exactly this. On October 6, the Centers for Medicare and Medicaid Services (CMS) shared guidance about the MA program. Media coverage suggested that MA plan enrollment would fall for the first time in over 20 years, from 34.9 million members to 34 million members.

Source: Newsweek

Source: CNBC

However, the headlines missed a bit of nuance. CMS did not actually project that MA enrollment in 2026 would be 34 million. Instead, it reported that the sum of the MA plans bid projections added up to that number. CMS, on the other hand, wrote:

“based on recent historical experience and enrollment trends, CMS anticipates that enrollment in MA in 2026 will be more robust than the plans’ projections and that enrollment will be stable.”

Source: CMS

How could this be true? Why would the sum of the individual plan projections be a poor estimate of final enrollment?

…however, MA plans systematically under-anticipate their competitors actions

As we learned from Susan Moop, the MA bid cycle is the key business process that drives the growth and profit equation for an MA plan. One of the big challenges with this process is understanding the moves of your competitor. Let’s use an example close to my home, the Green Mountain State of Vermont (VT). When Humana was assessing its plan design strategy for making a bid into various VT counties in 2026, do you think it had on its bingo card that both BCBSVT and UNH would exit the market leaving Humana as the only MA plan available state-wide? My guess is no. To that end, Humana is likely going to grow exponentially more than it expected in VT in 2026, whether it wants to or not.

Why is this important? Humana is not reporting enrollment growth in these VT counties in their bid submissions to CMS. Multiply this by all the plans in all the counties across the country and you can understand why CMS is more confident that the MA enrollment will be more stable than plans are forecasting.

…and monthly enrollment rates and past patterns in open enrollment suggest 2026 MA enrollment will grow

One way to think about how to model MA growth is to take the growth of the Medicare population and then make assumptions about how many of those enrollees are on MA or Traditional Medicare. The long term demographic forces are powerful.

1. Leading up to the pandemic, the growth in the Medicare population increased more than 2.5% per year every year

2. While the pandemic dramatically and tragically slowed this growth due to accelerated death rates, 2024 growth recovered to 2.3%. Barring another pandemic-like event, the actuarial trends will continue.

3. For years MA captured the disproportionate share of this growth, at rates of close to double digits while Traditional Medicare declined

4. 2024 was the first year in 10 years when the enrollment of those in Traditional Medicare did not shrink

Source: CMS, Medicare Enrollment Dashboard

Effectively a projection for MA enrollment to decrease in 2026 is a bet that the red line above would move negative. Is that possible? My sense is no.

The way to think about the math is that enrollments come from 2 sources: Annual Enrollment Period (AEP) that runs from October 15 and December 7 (for an effective date of January 1) and Rest of Year (ROY) monthly enrollment.

1. ROY: Lets talk about ROY first given we have 8 months of data/experience this year. To date as of September 1, MA has grown 2.7% on an annualized basis. Pretty incredible given the state of the market. These are members newly eligible to Medicare, members opting into 5 Star plans, or members purchasing special needs plans. If this rate continues through the end of the year, this will account for 1 million net new MA members.

2. AEP: Open enrollment numbers will be measurable in early 2026, and this is where there is a good reason to question whether we will see a material slowdown. As you can see below, 2024 was the lowest AEP on record since the post Balanced Budget Act contraction. [btw running this analysis was a painful reminder of when, at Iora, we launched clinics in anticipation of a big 2015 AEP - not fun].

Source: CMS, Monthly MA Enrollment by State/County/Contract

The math is hard to ignore. To reach the MA plan estimate of 34 million members in 2026 and erase 1 million ROY new members, AEP would need to contract by 5.6%. It is true that MA plans are cutting commissions to brokers and this should have an effect that has yet to be encountered. However, given the lack of clear alternatives (switching to Medicare with supplemental insurance is pricey and switching to Medicare without supplemental insurance is risky) it seems like a much more plausible outcome is a no growth AEP scenario, and 2026 total lives of 35.8 million. Not a great growth year, but not that much different from 2024.

…and the demographic & regulatory fundamentals for 2027 and 2028 are strong

While 2026 will be soft by any measure, it is more instructive for entrepreneurs and leaders to look out into the future of the program.

The Bull Case:

Plans are starting their 2027 bid strategy right now. If I were a fly on the wall of those organizations, I suspect cautious optimism would fill the air:

1. The demographics continue to drive wind at the back of new enrollees into Medicare

2. Fewer competitors in the market with whom to compete

3. More solid financial discipline with which to make bets

4. v.28 risk adjustment is fully operational

5. A tough, but supportive administration that wants private industry to succeed and grow but be held accountable and outperform the traditional medicare program - this would imply better reimbursement on the margin

The Bear Case:

Headwinds are still out there.

1. The likely elimination of veterans-targeted plans (that have been criticized for questionable merit/value) will impact both enrollment and margin

2. The possible shift to using MA data to create county benchmarks vs. only traditional medicare data. This would have the effect of dramatically reducing rates.

3. Advanced primary care medical groups (APCs) have been MA plans most important partners, but their financials (revenue and medical loss ratio deficits) and access to capital have been eroded over the last 3 years. If plans cannot find ways to support high performance primary care, plans will not be able to deliver the quality and total cost of care performance necessary to demonstrate value to taxpayers

Conclusion

The predictions of MA’s demise seem to not incorporate the true fundamentals. A far more likely picture is that by 2030, the MA program will have over 44 million members, representing 60% of Medicare beneficiaries enrolled. In this scenario, 2024-2026 will look like a temporary slow down before growth accelerates into the next presidential cycle. The entrepreneurs and leaders of organizations that will be best positioned are those that can lean into this period with targeted growth and plan design strategies. Those on their heels will miss the cycle - losing share or growing in unsustainable ways.