Maybe Not an Advantage - Part 2

Last Wednesday we noted that there are significant questions about the seemingly-cheap Medicare Advantage plans over the longer term. Barrons suggests that the longer term may be arriving:

America’s health insurance giants have gone all-in on the government-funded Medicare Advantage program over the past decade, reshaping their businesses to capture the profits it promised. Now, a sharp spike in hospital and doctor office visits among older Americans is raising questions about whether a program that once seemed to promise growth for the sector might emerge as a major liability.

Managed-care companies are reporting that seniors on Medicare Advantage plans used far more medical services than expected in the final months of 2023. The announcements have sparked two separate selloffs over the past week: The first came Jan. 12, when UnitedHealth Group announced its fourth-quarter earnings. The second came Thursday, after Humana laid out preliminary fourth-quarter results, and said the high utilization trends would have a material impact on its 2024 performance “if current trends continue.” ...

It’s hard to overstate how far the insurers have gone to cater to Medicare Advantage: CVS spent $10.6 billion to acquire Oak Street Health, a primary care chain that focuses on Medicare Advantage patients, while UnitedHealth has built out a large chain of healthcare providers under its Optum Health division. But the high utilization rates announced over the past week show how Medicare Advantage can also be a lead weight. While the federal government pays large premiums, they are fixed, which means the companies carry significant risk if medical costs come in higher than expected. The companies might be able to compensate for higher utilization over time—either by extracting better terms from the federal government or by cutting benefits...

Full story at https://www.barrons.com/articles/humana-stock-unitedhealth-cvs-medicare-advantage-ea828e53.