Healthcare Profitability Trends After the Pandemic

Only 4 in 10 Medicare Advantage plans were profitable for CY2024. That's down from over 6 in 10 in CY2020 and prior. --- Milliman's latest analysis of 435 #MedicareAdvantage Organizations (MAOs) shows a quick decline in profitability the last two years. Composite underwriting margins turned negative for the second year in a row, down to -0.7%, from +1.1% in 2023. That’s a nearly $3 billion loss on $423 billion in revenue. The news is worse for provider-sponsored plans (PSHPs). Aggregate losses deepened to -4.5%, compared to -2.8% last year. Nearly one in five PSHPs reported losses exceeding 20%. --- Here are the primary drivers covered in the paper: -Medical loss ratio (MLR) hit a 10-year high driven by rising inpatient and outpatient utilization. -CMS benchmark rates have flattened. -#StarRatings dropped, reducing bonus revenue and creating drug benefit volatility. -The Inflation Reduction Act began impacting plans, especially on the #PartD side. Administrative costs remain a challenge, especially for smaller or less efficient plans. The trends were more forgiving for larger plans. 45% of MAOs with over $1B in revenue still posted gains. However, only 40% of all MAOs achieved positive margins, down from ~60% just a few years ago. Some carriers have already exited the market. Others are dialing back benefits or raising member cost-sharing. --- The conclusion is similar to what I've covered in previous posts. There's a shift towards focusing less on growth and more on profitability. Plans will need to rethink growth strategy, pricing, and care management. How is your organization handling this pressure?

Healthcare's Crystal Ball - Predictions for 2025 and Beyond 🔮 McKinsey & Company report provides a detailed outlook on the evolving dynamics of the US #healthcare #industry. ➡️ Key Challenges - Financial Pressures: Since 2019, the healthcare industry has faced declining profitability, with EBITDA as a share of National Health Expenditure dropping by 150 basis points. Payers and providers have been particularly affected due to inflation, labor shortages, and constrained reimbursement growth. - Shifts in Payer Mix: Enrollment in Medicaid and Medicare has grown from 43% in 2019 to 45% in 2023. However, Medicaid enrollment is declining due to eligibility redeterminations, while Medicare Advantage (MA) faces cost pressures from regulatory changes. - Utilization Trends: Procedure utilization rates remain below pre-pandemic levels, creating uncertainty for payers. Non-acute settings like ambulatory surgery centers are gaining prominence as care shifts away from hospitals. ➡️ Growth Opportunities Healthcare Services and Technology (HST)   - HST is the fastest-growing sector, with an expected EBITDA compound annual growth rate (CAGR) of 9% from 2023 to 2028   - Growth is driven by advanced technologies like generative AI, data analytics, and outsourcing by payers and providers to improve efficiency.   - Software platforms and analytics businesses are projected to grow EBITDA at CAGRs of 14% and 20%, respectively. ➡️ Specialty Pharmacy   - Specialty pharmacy is experiencing rapid growth due to increased utilization of specialty drugs (e.g., oncology therapies) and new therapy launches.   - Its EBITDA is projected to grow at over 10% CAGR from 2023 to 2028. ➡️ Provider Segments   - Non-hospital settings like home health and ambulatory surgery centers are expanding rapidly due to patient preferences and cost efficiency.   - Provider EBITDA is expected to grow at an 8% CAGR from $263 billion in 2023 to $385 billion in 2028 ➡️ Payers   - Government segments (e.g., Medicare Advantage) are expected to dominate payer EBITDA by 2028, growing at a faster rate than commercial segments   - Recovery drivers include increased participation in managed care for dual-eligible populations (Medicare/Medicaid) and higher premium rates ➡️ Sector-Specific Trends - Medicare Advantage (MA): Enrollment is projected to grow annually by 5% through 2028, but margins face pressure due to regulatory changes. Recovery is expected starting in 2025. - Commercial Insurance: A shift from fully insured to self-insured models is anticipated as employers seek cost savings amid rising premiums. - Pharmacy Benefit Managers (PBMs): Increasing demand for transparency and cost-based pricing models will reshape the PBM landscape. ➡️ Technological Transformation - Adoption of technologies like generative AI is accelerating across the industry, enabling automation, data connectivity, and actionable insights. Over 70% of healthcare organizations are exploring or implementing AI solutions.

The $371 Billion Blind Spot: Why AI Couldn't Save Health Plans from the Utilization Tsunami Health insurance executives are scratching their heads. Despite investing billions in AI, major insurers are watching their margins evaporate as utilization surges beyond all forecasts. The numbers tell a devastating story: 2024 Financial Carnage: • United: Net income plummeted to its lowest level since 2019 despite record revenue, hammered by utilization costs and cyberattack impacts • Humana: 2024 profit slashed in half amid higher medical spending, expects to lose 550,000 Medicare Advantage members this year due to plan cuts • Highmark Health: $166 million in operating losses in 2024, compared with an operating gain of $400 million the prior year 2025 Q1: The Crisis Deepens: • United: Dramatic earnings miss forces guidance cut from $29.50-$30 per share to just $26-$26.50, a stunning $3+ reduction sending shares -19%. MLR projected to hit 86.5% in 2025, up from 85.5% in 2024 • Humana: Q1 profit of $1.2 billion on $32.1 billion revenue, but still reeling from Medicare Advantage losses & member exodus • Elevance: Despite beating expectations with $2.2 billion in Q1 profit, executives scrambled to "soothe investors spooked by UnitedHealth's rough showing" • CVS Health: Shares dropped 2% in sympathy with sector-wide medical cost concerns, despite revenue beat at $94.59 billion The uncomfortable truth: AI excelled at pattern recognition, but failed spectacularly at predicting the perfect storm of post-pandemic healthcare demand. The algorithms were trained on historical data that became obsolete overnight. Deferred care during COVID created a utilization tsunami that no model anticipated. Mental health claims exploded. Chronic disease management needs skyrocketed. The "return to normal" never came. AI wasn't programmed for the new normal Three critical AI blindspots exposed: 1. Data recency bias - Models optimized on pre-2020 patterns couldn't adapt fast enough to post-pandemic healthcare behaviors 2. Correlation vs. causation failures - AI spotted statistical relationships but missed the fundamental shift in patient acuity & care-seeking patterns   3. Black swan immunity - Machine learning thrives on probability, but healthcare utilization doesn't follow neat probability curves during societal disruptions The irony: While health insurers were deploying AI to deny claims more efficiently, they weren't using it effectively to predict the utilization waves that would sink their bottom lines. The lesson: AI is a powerful tool, but it's not a crystal ball. In healthcare, human insight, epidemiological expertise, and scenario planning still trump algorithmic confidence. As insurers race to embrace AI across every aspect of care, this serves as a critical reminder that technology must complement, not replace, fundamental understanding of healthcare dynamics. #HealthInsurance #AI #Healthcare #RiskManagement #HealthTech Image Courtesy: Duncan Greenburg

When healthcare executives speak, we should listen. Deloitte's 2025 US Healthcare Outlook, drawn from a survey of 80 C-suite executives from large US health systems and health plans, finds that the top priorities for healthcare leaders are growth and improved margins. According to the report, nearly 60% of executives have a favorable outlook for the coming year, with 69% expecting revenue increases and 71% anticipating better profitability. The focus on growth is underscored by 65% of executives identifying “developing growth strategies to increase revenue” as their number one priority for 2025. Technology, specifically AI, is identified a key lever in achieving these goals. One-third of executives name technology investments as a focus area—notably as a means to enhance profitability and margins. Consumer-facing digital tools, platforms for virtual care, and AI are all touted as strategies to increase engagement and drive revenue. Cost reduction, once a primary concern, now ranks low, with many leaders believing their organizations have already done all they can on that front. While many of the health system entities are non-profit and many of the health plans claim their value proposition is lowering costs, I wouldn't expect anything different from the leadership of the largest US healthcare organizations. But, we must ask ourselves, do we honestly believe that these very same organizations are to be trusted with the task of lowering the cost of care and improving the nation's health outcomes? The obvious answer is no - but our current policies regulating these entities suggest that we are blind to their business motives. The drive for growth and profitability isn’t inherently wrong—organizations must remain financially viable. But healthcare isn’t just another industry; its purpose is to care for people and it is largely funded by the federal government through programs like Medicare, Medicaid and exchange subsidies. The remainder of the bill is foot by hardworking Americans and the businesses that employ them. If growth were born of a truly transparent and competitive market where the scales have not been tipped by the thumb of warped government spending, I would celebrate it as a tool to reduce the overall cost of care and ensure the nation’s population receives equitable, high-quality health services. But growth has become the end itself. Healthcare executives are telling us how they intend to operate with our hard earned taxpayer dollars and wages. Will we listen?

Nearly 30 years of working with health system leaders teaches you to recognize when the conversation is shifting. It's shifting right now. The health system executives I'm speaking with across the Northeast are no longer just asking how to cut costs. They're asking bigger questions: How do we grow in a constrained environment? Where are we losing money on services we don't have to provide? How can we reduce variation and deliver care more efficiently and effectively? How do we actually get ROI from our technology investments? What does Medicaid reform mean for our balance sheet? Our latest Deloitte research — drawing on surveys of more than 60 health system finance leaders — reflects exactly this shift. Cost reduction has dropped to last on the list of CFO priorities. In its place: a multidimensional push across growth strategy, operating model transformation, revenue improvement, and capital efficiency. The numbers that tell the story: → 71% of healthcare executives expect improved profitability in 2025 → Yet 25% say they've missed their margin targets three years running → Only 1 in 3 leaders report meaningful impact from technology modernization — a significant gap given the investment being made → Outsourcing noncore functions remains underutilized, despite potential savings of up to 28% The health systems that are going to emerge stronger from this period aren't doing one thing differently. They're doing everything differently — at the same time. That's hard. But it's also where the opportunity is. If you're a health system leader navigating these questions, I'd welcome a conversation. Feel free to connect or send me a message — I'm always glad to compare notes on what's working. 📎 Link to the full Deloitte research in the comments. #Healthcare #HealthcareLeadership #HealthSystems #CFO #Deloitte #MarginImprovement #HealthcareStrategy #Northeast