UnitedHealth Retreats From Medicare Advantage Markets as Costs Bite
The insurer expects to shed roughly a million Medicare Advantage members this year after exiting plans covering hundreds of thousands of people, in a deliberate trade of enrollment for margin.
UnitedHealth Group expects its Medicare Advantage enrollment to fall by roughly a million people this year, the consequence of a decision to exit plans covering more than 600,000 members and to reprice much of what remains.
The company has guided to a full-year medical loss ratio near 88.8% — the share of premium revenue consumed by medical costs — and to revenue of roughly $439 billion as it works through a turnaround.
What went wrong
Medicare Advantage was, for two decades, the most attractive business in American health insurance. Private plans administer Medicare benefits for a per-member payment adjusted for how sick the enrolled population is, and for years enrollment and margins grew together.
Three things changed. Utilization rose sharply as members returned to care they had deferred, particularly outpatient procedures among older enrollees. Federal payment methodology was revised in ways that reduced revenue per member. And the coding practices that had lifted risk-adjusted payments came under sustained scrutiny.
Margins at the insurance arm fell from roughly 5% to under 3%.
The strategy now
The response is a familiar one in insurance: shrink to the business that prices correctly. Exiting counties and plan designs where the economics do not work costs enrollment and market share, but it removes the members generating losses.
Management has indicated that cost trends are running below the assumptions built into this year's pricing and that Medicare margins should exceed 3% — the first sign in two years that the repricing is working.
Who bears the adjustment
The people whose plans were discontinued must choose another. For many, that means a different network, a different drug formulary and a different set of supplemental benefits — dental, vision, transportation — that Medicare Advantage plans use to compete and that have been trimmed across the industry.
The broader lesson is about how quickly a business built on a government payment formula can turn when the formula changes. It is the recurring risk in every industry whose revenue depends on a federal schedule, and it is why insurers trade at lower multiples than their growth rates alone would suggest.
