BusinessMay 30, 2024
Private Insurers Used To Rely On Medicare and Medicaid For Big Profits. Now, The Programs Are Costing Them Billions.
Healthcare Headwinds
Noah Weidner
Discover
Nearly 145M Americans — seniors, low-income, and disabled individuals — rely on public healthcare plans like Medicare and Medicaid. That’s around 42% of the population. But don’t be fooled: the primary beneficiaries of these cheaper healthcare plans haven’t been the patients but the private insurers who manage plans for virtually all Medicaid enrollees and half of Medicare users. However, this might soon change.
Insurance disturbance: For years, major insurers profited from government healthcare plans like Medicare Advantage and Medicaid. But post-pandemic, medical claims have surged, outpacing enrollments — and government reimbursements haven’t kept up with rising costs. The Centers for Medicare and Medicaid Services approved a modest 3.7% increase in 2025 Medicare Advantage plan rates, a slap in the face for insurers who expected more. Consequently, private insurers are bearing the brunt financially.
Due to rising costs and claims, private insurers have struggled this year, following years of strong market performance. CVS Health and Humana are down 26% and 16% year-to-date, respectively.
Less for more: In response to these challenges, insurers intend to hike prices and cut benefits. UnitedHealth and others plan to reduce vision, dental, and prescription drug coverage — and some might exit markets entirely. But despite losing millions of Medicaid members last year, insurers saw revenue from these programs increase — indicating that shrinkflation is expanding beyond the grocery aisle.
