By Amina Niasse
NEW YORK, May 1 (Reuters) – Americans enrolled in Medicare Advantage health plans should expect to see fewer extra benefits like gym memberships and vision and dental coverage next year, investors and industry experts say.
The U.S. government said earlier this month it would raise 2027 payments to insurers managing Medicare Advantage plans for people aged 65 and older or with disabilities by 2.48% on average. Dr. Mehmet Oz, head of the Centers for Medicare & Medicaid Services, has aimed to cut federal health plan spending.
Insurance executives in recent weeks have said those rates, while higher than first proposed, are not good enough. On Wednesday, Humana flagged it would need to cut benefits.
Added services including coverage of vision, hearing, dental, fitness programs, meals and transportation assistance have helped entice half of the 70 million people on Medicare into managed care plans instead of the government’s standard fee-for-service-based program.
BENEFIT CUTS LIKELY ACROSS INSURERS
Cutting some benefits, as well as exiting certain regions or states, could shield Humana and its rivals, including UnitedHealth Group’s UnitedHealthcare and CVS Health’s Aetna, from added costs, five investors said.
Medicare Advantage plans account for 80%, 33% and 12% of revenue for Humana, Aetna and UnitedHealthcare, respectively.
“All insurers are likely to cut back on benefits, but Humana will be cutting back the most,” said Kevin Gade, chief operating officer at Bahl and Gaynor.
Cutting those benefits encourages costly members with higher rates of medical needs to seek other plans, Gade said.
“Aetna continues to offer quality insurance coverage in a manner that is sustainable for our clients and our business,” said a CVS Health spokesperson. UnitedHealth declined to comment.
Humana CEO Jim Rechtin on a Wednesday call with analysts and investors said the company would have to make the cuts to reach profit targets, but that it would try to retain what is most important to its members.
“We will adjust benefits to remain on track to deliver our 2028 commitment of returning to a sustainable margin of at least 3%,” said Rechtin.
Bobby Hunter, UnitedHealthcare’s head of government programs, earlier this month said funding for its Medicare Advantage business is still below what it expects for 2027, but he did not flag benefit cuts.
A spokesperson for AHIP, an insurance industry trade group, said: “As health plans incorporate recently released policies, they will continue to focus on keeping coverage and care as affordable as possible.”
PLAN CHANGES, VOTER BACKLASH
Morningstar analyst Julie Utterback said Humana has been offering more benefits in its 2026 plans than rivals.
“Potential benefit changes in 2027 may just be a matter of leveling the playing field for Humana relative to peers,” Utterback said.
Medicare Advantage insurers often wait until June to announce changes to plans, she said. Based on UnitedHealth’s recent comments, Utterback said, changes are “not out of the question.”
Investors said Medicare Advantage companies would be set apart by their quality, or “Star” ratings, which determine bonus payments and improve profitability.
“You have to be very particular within managed healthcare right now, especially companies with high government exposure and average ‘Star’ ratings, which is where Humana sits,” said Stephanie Link, chief investment strategist at Hightower Advisors, which owns less than 1% of UnitedHealth shares.
Medicare Advantage plan enrollment begins in October, just ahead of U.S. midterm elections that will determine whether Republicans can maintain their control of Congress. Voter anger over rising costs is often taken out on the party in charge.
“When Medicare Advantage funding doesn’t keep pace with costs, seniors pay the price. We’ve seen it play out year after year,” said Susan Reilly, vice president of communications at Better Medicare Alliance, a coalition advocating for the plans.
Seniors tend to reliably vote in large numbers.
Alex Mills, a professor at Baruch College’s Zicklin School of Business, said customers may be surprised at the increase in out-of-pocket spending, and that could lead to political pressure.
“It would not be shocking if there’s somewhat of a backlash,” said Bill Smead, founder and chief investment officer of Smead Capital.
(Reporting by Amina Niasse; Editing by Caroline Humer and Bill Berkrot)
