Healthcare Practice

Payer considerations
in 2024 as Medicare
Advantage changes
This year US health insurers have to navigate strong crosscurrents
from demographic shifts, regulatory changes, and member preferences.
How they react now can have an impact for years to come.
by Gabe Isaacson, Dan Jamieson, Sonja Pedersen-Green, and Cara Repasky

March 2024
The undeniable story of early 2024 for US
health insurers has been the sustained economic
pressures that Medicare Advantage (MA) payers are
experiencing. This was borne out in 2023 year-end
financial results, with several MA payers pointing
to inpatient and outpatient care utilization being
higher than expected, consequently increasing the
medical-loss ratio.
Looking ahead, the financial pressure on payers
could worsen. In its 2025 advance notice for new
payment rates, the US Centers for Medicare &
Medicaid Services (CMS) notes that there will be
an aggregate revenue growth (3.7 percent)1 when
the increase (3.86 percent) driven by the risk score
trend is included. Payers’ estimates of this number,
however, vary widely.
Taken together, these headwinds only exacerbate
the imperative for MA payers to contain costs.
Savings will need to come from both medical costs
and value-based care, as well as administrative
expenses and product design changes. Yet none of
this lessens the need to invest sufficiently to achieve
growth expectations and Star-rating aspirations.
Higher utilization in 2023 was likely spurred by
delayed care caused by the COVID-19 pandemic
and other acute triggers in excess of historical
trends. As the extent and longevity of these acute
triggers are uncertain, payers can continue to
monitor the research. But in the longer term, they
Cost-containment imperatives don’t
lessen the need for MA payers to
invest sufficiently to achieve growth
expectations and Star-rating aspirations.
1
“2025 Medicare Advantage and Part D advance notice fact sheet,” CMS, January 31, 2024.
Payer considerations in 2024 as Medicare Advantage changes
can also continue to focus on how the aging of the
Medicare population is likely to continue driving
utilization, indicating that this could be a new
normal. Similarly, some other seemingly gradual
changes could nonetheless be disruptive this year.
Besides planning for demographic shifts, payers will
need to navigate changes to Star ratings and rethink
product designs and distribution channels. All of
these factors are expected to complicate growth
and revenue. As we consider the decisions that
payers will need to contemplate, five key trends are
coming into clear focus for the year ahead: the need
for a product reset, an aging population, Star-rating
pressures, opportunities in special needs plans
(SNPs), and broker channel constraints.
Product reset
The cost-containment imperative for MA payers
means that a focus on ROI in product design is
already emerging as an undercurrent in 2024
and is expected to be a priority in the 2025 bid
cycle. Regulatory changes are putting pressure
on top-line revenue and may seemingly warrant
retrenchment, but instead we suggest that payers
make calculated trade-offs and reevaluate their
portfolios. In recent years, with more cash on
hand, the focus has been on increasing product
richness—for example, through new and more
generous benefits, increasingly in cash and cash-
equivalent forms—to drive growth.
2
However, as CMS starts to ask more questions on
benefit utilization to assess efficiencies,2 we expect
to see a more triangulated focus on designing
benefits for not just growth but also retention
(for example, ease of use and vendor stability)
and member outcomes (for example, proactive
engagement in seeking care and flex card allowance
focused on medical coverage rather than broader
retail access). Even with possible new reporting
requirements and nascent recommendations
regarding standardization, supplemental benefits
are expected to go from being nice to have to an
offering that provides meaningful strategic upside.
With the number of plan options increasing every
year, the market may have reached a saturation
point, leading to benefit designs that evolve from a
buffet to a curated menu.
Payers were clearly grappling with these choices in
the 2024 pricing cycle. Some pulled back in select
markets and aligned investment to risk-bearing
providers, whereas others employed a broader
stance to deliver richness across markets in pursuit
of a nationwide approach to membership.3 In 2024
and beyond, payers may see more value in having
a concise narrative for distribution partners and
beneficiaries rather than the “all things to all people”
approach of recent years.
A critical question for this year is whether the market
has reached a tipping point in benefit generosity
In 2024 and beyond, payers may
see more value in having a concise
narrative for distribution partners and
beneficiaries rather than the ‘all things
to all people’ approach of recent years.
2
David Kopans and Sua Yoon, “CMS upends Medicare Advantage supplemental benefits data reporting for payers,” DLA Piper,
February 27, 2024.
3
McKinsey analysis of CMS landscape files.
4
McKinsey analysis of US Census Bureau data.
Payer considerations in 2024 as Medicare Advantage changes
focused on growth and will shift to an environment in
which payers are more intentional about ROI through
member retention and improved health.
Aging population
Nearly half of the MA-eligible population will
be aged 75 or older by 2030, up from roughly
40 percent at the present time.4 This increase,
along with labor-shortage concerns, has triggered
rising qualms about a potential crisis in eldercare.
Healthcare worker vacancies reached 710,000 in
May 2023, and the educational pipeline indicates
that the gap is likely to expand in the next decade.
This makes 2024 a pivotal year to put in place
solutions to rebuild the depleted workforce of
doctors, nurses, certified nursing assistants, home
health aides, nursing home workers, and other
integral supporters of eldercare.
Besides the foundational solutions needed to
address workforce challenges, we expect to see a
shift toward next-generation care models to better
help the higher-need aging population access
the right care at the right time at the right cost.
These models often use technology and data to
personalize care through, for example, wearables,
remote monitoring, telehealth, and sophisticated
data platforms. This responsibility falls heavily on
payers—not only those that already own many of
these services, but also those that shoulder the
3
responsibility of engaging members to navigate
this complex web.
Of crucial concern are whether the emerging
crisis will prompt those payers that aren’t already
vertically integrated to begin down this path,
whether it will encourage those that are vertically
integrated to continue with M&A and investments
in healthcare delivery, and if the next decade of
investment will vary from the primary care–centric
investments to date.
Star-rating pressures
Another year brings another set of changes
to Star ratings for payers to adapt to. For one,
implementation of Tukey method guardrails for rating
year 2024 will raise the bar on the Star program.
The new provision nixes performance outliers from
calculations, which in turn contributes to more
challenging cut points. Also in the current rating
cycle, plans will face the deweighting of member
experience measures, which will place relatively
more emphasis on clinical and pharmacy metrics.5
Payers will need to focus on member and provider
engagement through both omnichannel outreach
and an on-the-ground presence, an area that has
traditionally seen lower investment. And it could
well be that clinical and pharmacy metrics, even
when properly collected, won’t affect Star ratings as
positively as member experience measures have.
Looking ahead, another important change to the
Star program is that a health equity index will replace
the reward factor, which benefited plans with
high and consistent performance across various
measures. The index, though, will do more for plans
with high performance on a subset of measures
for their low-income-subsidy, dual-eligible, and
disabled populations. For payers with fewer of
these members or less experience in serving these
populations, building out these capabilities will be a
multiyear effort. We expect to see payers invest in
these populations through both traditional care and
addressing social determinants of health.
5
“The impact of Stars 2024: An interview with industry leader Mick Twomey,” blog entry, AdhereHealth, October 20, 2023.
6
Alice Burns, Maiss Mohamed, and Maria T. Peña, “Medicaid arrangements to coordinate Medicare and Medicaid for dual-eligible individuals,”
KFF, April 27, 2023.
7
Neha Patel and Shubham Singhal, “What to expect in US healthcare in 2024 and beyond,” McKinsey, January 25, 2024.
Payer considerations in 2024 as Medicare Advantage changes
A vital matter is whether payers can adjust to the
new guidelines and reverse the downward trend in
Star ratings over the past couple of years.
Opportunities in SNPs
The market for SNPs, driven by both demographic
and regulatory trends, will continue to be an area of
increased focus. As top-line MA population growth
begins to slow, payers are continuing to seek out
pockets of growth, and chronic-condition SNPs may
be an emerging opportunity. They grew faster in last
year’s enrollment period than dual-eligible SNPs
(D-SNPs) did for the top three payers.
D-SNPs, however, remain the largest of the SNPs.
Recent years have seen substantial growth in
their population, with payer entry and investment
to match. This isn’t lost on state governments.
While not a nationwide phenomenon, more states
continue to move into highly integrated and fully
integrated models for the D-SNPs. New models
are expected in 2026 for Illinois, Michigan, and
Rhode Island, and many more states are likely to be
close behind. Recent surveys point to 17 additional
states that are considering pursuing new D-SNP
contracting strategies.6
McKinsey analysis indicates that while MA should
remain a high-growth profit pool overall, the dual-
eligible cohort is expected to see EBITDA increase
by more than 10 percent by 2027.7 This means
that payers are now grappling with the increasing
imperative to invest further in Medicaid capabilities
and partnerships, including through connecting
with community partners and social organizations,
to remain viable in this market.
A central issue is whether payers will make the
needed proactive moves to prepare—whether the
state they work within forces it or not—to build
the capabilities necessary to remain viable for the
D-SNP population.
4
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To date, payers have used broker
channels for their efficiency and high-
volume capabilities, but the expected
pressure on the broker business
Scan • Download • Personalize
raises questions of sustainability
and competitiveness.

Broker channel constraints A fundamental query is whether the new

Payers and brokers have been abuzz since CMS’s
November 2023 announcement “proposing to
redefine ‘compensation’ to set a clear, fixed amount
that agents and brokers can be paid regardless of
the plan the beneficiary enrolls in.”8 With customer
acquisition costs widely pushing north of $2,000
across the country, these compensation caps could—
if implemented as proposed—have a meaningful
impact on the financial solvency of the largest field-
marketing organizations and brokerages.9
Although the compensation cap won’t affect those
naturally aging into Medicare from commercial plans,
it will affect other groups, as brokers have developed
superior marketing and sales capabilities for them.
To date, payers have used broker channels for their
efficiency and high-volume capabilities, but the
expected pressure on the broker business raises
questions of sustainability and competitiveness.
compensation caps will be a forcing mechanism
for payers to bring more distribution into internal
systems by enhancing and scaling their own
marketing and sales capabilities.
Although 2024 has just begun, we already see some
MA payers adjusting their outlook for the rest of the
year. The sustained increase in utilization is only
adding upward pressure on cost structures, while
the CMS 2025 advance notice is putting downward
pressure on revenue. We expect that the trends
discussed in this article will deepen disruptions for
MA payers. The next few months and the next round
of financial results will be telling about which payers
have anticipated these changes successfully,
setting them up for success for years to come.

8
“Contract year 2025 policy and technical changes to the Medicare Advantage Plan Program, Medicare Prescription Drug Benefit Program,
Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly, and Health Information Technology Standards,” CMS,
November 6, 2023.
9
Based on McKinsey analysis of earning filings for publicly traded brokerages.

Gabe Isaacson is an associate partner in McKinsey’s Pittsburgh office, where Cara Repasky is a partner; Dan Jamieson is a
partner in the Chicago office; and Sonja Pedersen-Green is an associate partner in the Minneapolis office.

The authors wish to thank Emily Pender for her contributions to this article.

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Payer considerations in 2024 as Medicare Advantage changes 5