In the short span of 18-24 months, the performance trajectories of major health insurers and large providers have effectively reversed.

Paul Mango’s detailed essay, “Fourth Quarter 2024 Update on Health Care Trends,” provides an intricate analysis of the dynamic shifts in the U.S. healthcare landscape as we approach the end of 2024. It offers a comprehensive view of three key themes: challenges for health insurers, stabilization of health system performance, and potential policy and market implications of the upcoming presidential election. This expanded summary delves deeply into the nuances of Mango’s observations, integrating specific data points and illustrative examples to provide a thorough understanding of the evolving trends.

1. Persistent and Growing Challenges for Health Insurers

The essay begins by highlighting the turbulence that health insurers are now facing, marking a stark reversal from their post-COVID profitability highs. This section provides a granular look at how regulatory, market, and utilization pressures are reshaping the insurance landscape.

Medicare Advantage (MA) Struggles

• Rising Costs and Utilization: Insurers have been hit by higher medical benefit ratios (MBR). For example, CVS reported an MBR of 95.2% for the fourth quarter, driven by increases in utilization, Medicaid acuity, and revised STAR ratings. Medicare Part D costs have also surged due to changes brought by the Inflation Reduction Act (IRA), and newly launched GLP-1 drugs have significantly elevated costs.

• Defensive Strategies: Large insurers, including the three biggest MA carriers, have scaled back, exiting unprofitable counties and reducing supplemental benefits to seniors. This shift reflects a broader industry pivot toward conservative margin recovery strategies, with long-term profit expectations in MA stabilizing at around 3-4%.

ACA Marketplace Growth and Challenges

• The Affordable Care Act (ACA) marketplace continues to expand, partly fueled by Medicaid disenrollment. Notable examples include Oscar Health, which reported over 60% year-over-year growth in its ACA segment. However, this expansion brings its own risks, as state-level Medicaid payment structures remain volatile.

Bright Spots Amid Challenges

• Specialty Pharmacy and PBM Growth: Insurers with integrated pharmacy benefits managers (PBMs) and specialty pharmacies have seen significant revenue and margin growth.

• Commercial Segment Growth: Robust employment rates have fueled growth in both small-group and large self-funded commercial insurance segments.

• AI Implementation: Insurers have increasingly adopted AI in revenue cycle management and contracting processes, achieving notable administrative efficiencies.

Market Outlook

Despite these positive developments, the cumulative pressure from STAR rating adjustments, regulatory changes, and the IRA’s phased drug pricing reforms ensures a challenging road ahead. These structural challenges demand a more resilient, innovation-driven approach to sustain profitability.

2. Stabilization and High Performance for Health Systems

In contrast to insurers, health systems have entered a period of remarkable financial recovery and stability. Mango offers a detailed assessment of the factors underpinning this turnaround.