Medicare Advantage cuts coming this year, retirement specialist warns (2024)

A retirement specialist is warning seniors to prepare now as Medicare Advantage cuts are likely to come during the next year.

Bob Carlson, an attorney and accountant who runs Retirement Watch, a monthly newsletter and site on retirement planning, wrote in an article for Forbes that Medicare Advantage plans will be cut as the federal government looks to reduce its spending.

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Medicare Advantage plans have become increasingly popular, with more than half of current Medicare beneficiaries enrolled in a plan in 2024. They often have lower out-of-pocket costs while offering seniors more flexibility with vision and dental coverage options.

Still, when seniors evaluate their plans during this year's open enrollment period, they may find that the upcoming changes to Medicare Advantage will make their current plan less attractive.

"Changes are underway," Carlson wrote. "Those enrolled in Advantage plans or considering them need to pay careful attention when evaluating plans in this fall's open enrollment season. There could be significant modifications to existing Advantage plans."

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Carlson said Medicare Advantage plans tend to be popular because they generally have lower costs if you are healthy and can bundle supplementary insurance and drug coverage options. They also tend to be more profitable with insurers.

Still, the federal government is looking to curb its costs by reducing Medicare Advantage options.

"Reduced payments to Medicare Advantage sponsors are likely to cause changes in the plans in 2025, such as higher premiums, copayments, and deductibles as well as reduced coverage," Carlson said.

The Centers for Medicare and Medicaid lowered its Medicare spending two years ago, and leaders at UnitedHealth and CVS Health have issued warnings about the changes.

For CVS, first-quarter earnings were lower than predicted, and company leaders expect earnings to dwindle below prior estimates. The company also enrolled more than 200,000 more members in Medicare Advantage than anticipated for 2024.

"Another warning was issued earlier this year by Humana, which said its Medicare Advantage business wasn't doing as well as expected," Carlson said. "Both CVS and Humana said it would take at least a couple of years to restore profit margins in their Medicare Advantage plans."

The reduction in Medicare Advantage was also confirmed by Medicare, with officials saying plan reimbursem*nts would be lower than what insurers expect for 2025.

"As Medicare and all plans in its ecosystem continue to absorb more of the federal government's yearly budget, policymakers have looked for areas where they can cut back, and one of the easiest is Medicare Advantage," Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek.

"The result is in coming years Medicare Advantage providers will see fewer payments to reimburse costs for those enrolled in their programs, and customers will be left having to pick up more of their bills for items and services originally covered."

The cuts could span several areas, with Medicare saying blood tests to detect early signs of organ transplant failure would no longer be covered. That type of switch means patients will need to wait until they display enough symptoms to get a biopsy, Carlson said, and other cuts are likely.

The news arrives as Medicare Advantage patients are using services beyond what insurers prepared for. For CVS, that meant higher outpatient service use and inpatient hospital admissions for the first quarter.

As a result of the upcoming changes, Carlson urged Medicare Advantage members to consider their options during open enrollment this fall and take note of which rule changes would impact their health care. They also might need to add on a backup plan, like original Medicare and its supplements.

"It's a lose-lose for Medicare Advantage providers and recipients," Beene said. "To providers, they now will be unable to cover every expense they once could or promised those who enrolled through them. For recipients, they're now left with picking up more of the tab for their medical expenses."

Chris Fong, CEO of Smile Insurance Group, said he expects the cuts to cause a lot of retirees to look around and make a change. He said the retirees most affected will be those with lower incomes or who are physically limited in some way.

"The areas of cuts will vary by insurance company and even down to the individual plans," Fong told Newsweek. "We are either expecting higher copays or lower extra benefits which include health foods grocery, dental, vision, hearing, transportation and any non-Medicare covered benefits."