Medicare Advantage cuts: What advisors should know

Medicare Advantage enrollment has surged over the past two decades, but insurers’ enthusiasm for the program is waning as they shift from expansion to profitability, cutting benefits and leaving unprofitable markets amid rising costs and lower government payments. Experts warn the changes could significantly impact older Americans who rely on Medicare Advantage — the private coverage sometimes called Medicare Part C — with considerable implications for retirement planning.

Major insurers, including Humana, CVS Health Aetna and UnitedHealthcare, have all announced plans to scale back their Medicare Advantage operations in 2025 and 2026.

Last May, CVS CFO Tom Cowhey said that the insurer could drop 1 in 10 — or roughly 600,000 — of its Medicare Advantage members by the end of 2025 in an effort to improve margins.

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“The goal for next year is margin over membership,” Cowhey said. “Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible. And that’s OK, because we need to get this business back on track.”

Humana has followed suit, announcing plans earlier this year to drop approximately 550,000 Medicare Advantage members by the end of 2025.

UnitedHealthcare, which until recently has pushed to expand its Medicare Advantage membership, announced plans last month to drop more than 600,000 members by the end of 2026.

“We are seeing higher-than-expected medical cost increases, particularly in outpatient care,” UnitedHealthcare CEO Tim Noel said on the company’s second-quarter earnings call. “The American health system’s long-standing cost problem is accelerating.”

Together, Humana, CVS Health Aetna and UnitedHealthcare provide coverage to 58% of all Medicare Advantage beneficiaries, nearly 20 million people in total, according to KFF, a nonprofit health policy research, polling and news organization. 

Medicare Advantage plans gained popularity through $0 monthly premiums and expanded benefits compared to traditional Medicare. The program appealed to healthy beneficiaries and, until recently, delivered strong profits for insurers through generous government payments and upcoding practices. But rising medical costs and tighter oversight are pressuring margins, prompting some insurers to rethink their approach.

Medicare experts like Melinda Caughill, the co-founder of 65 Incorporated, say that the shift could have major implications for financial advisors and the retirees they serve.

Two possibilities for Medicare Advantage members

Advisors should understand the two paths that could shape the experience of retirees enrolled in Medicare Advantage plans.

For beneficiaries who remain on Medicare Advantage plans going forward, they’re likely to see fewer benefits, higher costs in the form of premiums and copays and greater prior authorization requirements.

“Prior Authorization means your doctor is not in charge of your health care needs,” Caughill said. “Your doctor just advocates for you to an insurance company. Ultimately, the insurance company decides what you get or what you don’t get.”

Medicare Advantage insurers made nearly 50 million prior authorization determinations in 2023, according to KFF. The Centers for Medicare and Medicaid Services, meanwhile, conducted fewer than 400,000 prior authorization reviews for traditional Medicare beneficiaries in that same time period.

Nearly all Medicare Advantage enrollees (99%) must get prior authorization for certain services — typically high-cost care like inpatient hospital stays, skilled nursing facility care and chemotherapy.

Once retirees enroll in a Medicare Advantage plan, leaving it isn’t always simple. In most cases, beneficiaries can only switch back to traditional Medicare during specific enrollment periods, and doing so often means losing access to certain supplemental coverage options.

Medigap policies, which help cover out-of-pocket costs under original Medicare, may require medical underwriting if purchased after the initial enrollment window — making it more expensive or, in some cases, even impossible for older or less healthy individuals to qualify. For many retirees, that creates a barrier to exiting a Medicare Advantage plan once they’re already in it.

For the small number of members who are dropped from their plans, Caughill calls the next step the “nuclear option.”

“When you are dropped from a Medicare Advantage policy based on no action or choice of your own, you get a Medicare do-over, meaning you can get a Medigap policy with no medical underwriting,” Caughill said.

While Medigap plans aren’t strictly necessary, they can help cover costs that traditional Medicare doesn’t.

“You can get original Medicare by itself, but then that means you’ll pay 20% of every bill with no spending limit in sight. But astonishingly, the number of people who wind up doing that when they’re really sick is so huge that the government wrote a study on it, because they’d rather pay 20% of everything and at least get the care they need than remain on Medicare Advantage,” Caughill said. “So people need to understand that these decisions are very often long-lasting. You can’t just all of a sudden say, ‘Ooh, here comes open enrollment, Oct. 15 through Dec. 7, and now we’ll fix everything.’ It’s a lot more complicated than that. It’s a lot more permanent than that.”

Why some advisors urge clients to avoid Medicare Advantage

For many financial advisors guiding older clients, the advice is clear: Steer clear of Medicare Advantage from the outset.

Carolyn McClanahan, a physician and founder of Life Planning Partners in Jacksonville, Florida, tells clients to think twice before signing up. The allure of Medicare Advantage often comes from lower upfront costs and extra perks — things like gym memberships or dental coverage. 

“When you are healthy, you don’t have any problem with [Medicare Advantage] because you don’t need to access health care often. The insurers are happy with that crowd because they are making money,” McClanahan said.

The picture changes dramatically when health issues arise. Along with prior authorization requirements, insurers often narrow their networks further as expenses rise, making it harder for patients to find doctors.

“Once you get sick and have to experience the limitations of [Medicare Advantage], you wish you were on traditional Medicare,” McClanahan said. “But because you are sick, you will have a problem with the underwriting to get back on a Medigap policy.”

Caughill said it’s crucial that advisors educate themselves on Medicare and incorporate it into their retirement planning.

“I’m constantly on a soapbox with financial advisors to try to get them to care,” Caughill said. “Because at some point, a financial advisor who doesn’t care, who doesn’t consider Medicare, … will have conversations with their best clients in 10 or 15 years [and say], ‘Oh, you have all these unexpected medical costs now, and this skilled nursing facility stay is not covered. What are we going to do?'”

“I get it. We all want to do just what we signed up for. But Medicare is, unfortunately, a prevalent part of retirement,” she said. “You can’t do retirement planning without considering the number one cost in retirement, which is health care, which in this country is Medicare.”