A spike in care utilization among seniors and proposed Medicare Advantage (MA) rates that payers find less than satisfactory have dominated the conversation during the current run of industry earnings calls, but analysts at Fitch said Wednesday they expect the impacts to generally be credit-neutral.
The three largest players in MA—UnitedHealthcare, Humana and Aetna—all saw a significant spike in utilization during the fourth quarter. That care use was trending up was flagged earlier in the year, but that came to a head in the fourth quarter as MA plans saw a rise in both seniors seeking elective procedures, like orthopedic surgeries, that were deferred during COVID-19 and in MA enrollees getting the respiratory syncytial virus vaccine.
In addition, there was a seasonal rise in COVID-19 hospitalizations. UnitedHealth, for example, saw between 50% and 60% more hospitalizations for COVID-19 in December when compared to October and November.
Plus, the Centers for Medicare & Medicaid Services issued its proposed Advance Notice for MA in 2025, with payment rates that payers have deemed as inadequate. The final rates will be set by April 1, and changes are likely.
The Fitch analysts, however, said that major payers are largely positioned to weather these challenges in the long term even as the headwind battered them in the fourth quarter.
"Fitch-rated health insurers generally have sufficient ratings headroom to withstand higher MA utilization rates, with broader medical loss ratios remaining within ratings expectations for most insurers," the analysts said. "We expect stability to return to the business over the next 12 to 18 months as the higher utilization and hangover effects from the pandemic normalize and carriers adjust to administrative changes in the program."
And, while the increase in utlization is likely "placing downward pressure on MA margins for insurers," the Fitch analysts said that it could be a boon for providers, given the popularity of MA.
For-profit systems, for example, have seen "above-average" growth in same-facility volumes throughout 2023, including an increase in inpatient volumes, despite feeling the squeeze as patients made the shift to ambulatory surgical centers to seek outpatient services. The growth in utilization among MA members was a critical part in a broader stabilization of utilization, according to Fitch, that was a boost to providers after a rocky 2022 financially.
Despite this, the Fitch analysts do note that there is a growing trend of providers, particularly nonprofit organizations, choosing to leave the networks of MA plans.
"Reasons often cited by the systems include administrative challenges, slow payments and denial of prior authorizations for care," the analysts said.
Overall, the analysts said that while there are notable headwinds now in MA, the market is still set to be a key growth engine moving forward, and payers will not likely back off from the program in any significant way, given the number of people aging into Medicare.
"The MA business will continue to be an important focus of U.S. health insurers, despite the current modest disruption," they wrote. "As the U.S. population continues to age, resulting in new beneficiaries eligible for the program, Medicare Advantage will continue to be a strong source of revenue growth for health insurers and healthcare providers in the coming years."