Trends Shaping The Business Of Health Insurance In 2024

The new year dawned on a health insurance industry beset by challenges.

Only 7% of health plan executives view 2024 positively after being hammered by the coronavirus pandemic, regulatory turbulence and rising cost pressures, according to a Deloitte survey.

Costs are spiking, and health insurers remain uncertain how the lingering effects of COVID-19 will impact care utilization. Medicaid redeterminations are rewriting the coverage landscape state by state, while Medicare Advantage — the darling of payers’ business sheets — experiences significant regulatory upheaval.

Meanwhile, 2024 is a presidential election year. That’s adding more political uncertainty into the picture as Washington hammers payers over claims denials and the business practices of pharmacy benefit units.

Here’s what experts see coming down the pike for health insurers this year.

The uninsured rate will go up

The number of Americans without insurance coverage is almost certainly going to rise this year as states overhaul their Medicaid rolls, experts say.

During the pandemic, continuous enrollment protections led a record number of people to enroll in Medicaid. But earlier this year, states resumed checking eligibility for the safety-net program. Around 14.4 million Americans have been removed from Medicaid due to the redeterminations process, many for administrative reasons like incorrect paperwork despite remaining eligible.

“We are going to see an increase in the uninsured rate for children and probably adults as well as a consequence,” said Joan Alker, executive director of the Georgetown University Center for Children and Families.

The question is how big of an increase, experts said. Redeterminations began in April, but lagging information and state differences in data reporting has made it difficult to determine where individuals are turning for coverage, and in what numbers.

Early signs suggest some people losing Medicaid have found plans in the Affordable Care Act exchanges, though it’s probably “a very small percentage,” Alker said. More than 20 million people have signed up for ACA coverage since open enrollment began in November — an all-time high, according to data released by the Biden administration in early January.

Experts say the growth is due in part to redeterminations, along with the effects of more generous federal subsidies. Those subsidies are slated to expire in 2025, meaning ACA enrollment should stay elevated until then.

But it’s unlikely everyone who loses Medicaid will find a home on the marketplaces. The cost of family coverage without an employer remains out of reach for many Americans. It’s also too early to determine how many people terminated from Medicaid have shifted into employer coverage — that data should also emerge as 2024 continues, said Matt Fiedler, a senior fellow with the Brookings Schaeffer Initiative on Health Policy.

Federal regulators have also taken a number of actions to try and curb improper procedural Medicaid losses, like cracking down on states with high levels of child disenrollments. Yet, procedural terminations are unlikely to improve significantly this year, experts said.

“We do see a very hopeful trend” in some states, like Washington and Oregon, embracing longer periods of continuous eligibility, Alker noted.

The government has ramped up ACA marketplace outreach, which — along with macro forces like a strong labor market — are positive signs that individuals no longer eligible for Medicaid may find alternative coverage, whether in the ACA exchanges or through employment.

But “it’s likely we’ll see an increase in the uninsured rate. I think the question is how much,” Fiedler said.

Increasing vigilance around costs

Healthcare costs are projected to grow much faster in 2024 than the historical average, fueled by inflation, supply chain disruption and labor pressures increasing provider wages. Those costs are burdening employers already stressed by worker mental health and deferred preventive screenings that could worsen health conditions down the line.

As a result, employers are investing heavily in mental health and substance use disorder services. Seven out of ten employers say mental healthcare access is a priority in 2024, and employers say they’ll turn to virtual care providers to address the need, according to a Business Group on Health survey.

As a result, employers are increasingly demanding integrated platforms combining different benefits, continuing a pivot away from the point solutions they were deluged with during the pandemic. Payers are racing to meet that need.

This year, UnitedHealthcare plans to integrate more than 20 standalone products into a “supported benefits platform,” said Dan Kueter, CEO of the payer’s employer and individual business, during an investor day in November.

Cigna, which focuses on employer-sponsored plans, plans to add more services to its behavioral health navigator to help employers personalize the platform for their employees this year, said CEO David Cordani during a November earnings call.

For their part, health insurers are likely to raise premiums and combat hospital reimbursement hikes in 2024 to control costs, according to credit rating agency Fitch Ratings.

However, that outlook is complicated by uncertainty around how much elevated care utilization seen in 2023 will continue. Some payers, like UnitedHealth and Humana, are forecasting high utilization, while others like CVS have said they expect it to drop.

More payers might pursue mergers and acquisitions or build out internal musculoskeletal management programs to control costs, said Prateesh Maheshwari, a managing director at venture capital firm Maverick Ventures. Hip and knee surgeries were an oft-cited driver of utilization last year.

Still, publicly traded health insurance companies could see their margins moderately decrease in 2024, Fitch said.

GLP-1 coverage will increase — slowly

Surging demand for GLP-1s means insurance coverage for the drugs is expected to increase next year, putting more stress on the nation’s pressured healthcare payment system. GLP-1s, or glucagon-like peptide-1 drugs, have historically been used to treat diabetes but have shown efficacy in weight loss.

The drugs are exceedingly expensive, but that hasn’t stopped people from trying to get their hands on GLP-1s — off-label or not. TD Cowen predicts GLP-1 sales could reach $102 billion by 2030, with $41 billion of that for obesity.

More private payers are considering covering the drugs next year, though the doors to coverage aren’t being thrown wide open. According to a November survey by the International Foundation of Employee Benefit Plans, while 76% of employers provide GLP-1 drug coverage for diabetes, just 27% provide coverage for weight loss.

Yet, 13% are considering adding coverage for weight loss.

As insurance coverage increases, payers will ensure only eligible patients are accessing the drugs through checks like step therapy, said Nathan Ray, head of healthcare M&A at consultancy West Monroe. As a result, access could remain restricted.

Payers will also tie coverage for GLP-1s to additional behavioral management programs. That trend has proved a gold rush for chronic condition management companies and telehealth providers, which have rushed to stand up new business lines for weight loss that include GLP-1s.

“Things like this, that include the opportunity for medication along with the accompaniment of behavioral change, is where I think the market will go in 2024,” said Heather Dlugolenski, Cigna’s U.S. commercial strategy officer.

Proponents of weight loss medication are also eyeing a potential overturn of the ban on Medicare coverage of weight loss drugs next year. A growing number of lawmakers (and drugmakers standing to profit from Medicare coverage) have come out in support of a bill introduced in 2023 to allow Medicare to cover anti-obesity drugs.

The bill is unlikely to be prioritized given Washington has a lot on its plate during the election year, but passage isn’t out of the realm of possibility, experts said.

Medicare Advantage will continue to grow under Washington’s watchful eye

More seniors will select Medicare Advantage plans this year, further growing a program that recently saw its enrollment sneak past that of traditional Medicare.

In MA, the government contracts with private insurers to manage the care of Medicare seniors. MA has become increasingly popular, swelling to cover 31 million people last year — a boon for insurers offering the coverage, which can be twice as profitable for private payers than other types of plans.

As such, MA plans have been advertising heavily, trumpeting their supplemental benefits like gym memberships or subsidized groceries. Seniors find those benefits attractive, Brookings’ Fiedler said, and may not understand that MA plans may not cover as much medical care as traditional Medicare.

”My best bet would be MA enrollment in the near term continues to grow,” Fiedler said. “I don’t think we’re at the ceiling yet.”

Despite elevated costs in 2023 from seniors using more medical care, insurers generally didn’t cut back on plan benefits this year as they continue to compete for members.

Major payers in MA, including Humana, UnitedHealthcare, Centene and Kaiser Permanente, expanded their geographic markets for 2024, even as some lagging competitors like Cigna consider exiting MA altogether.

Yet, the program hasn’t been without its complications. Payers cried foul last year over tweaks to MA rates, star ratings and reimbursement audits, with Humana and Elevance suing to stop the changes.

MA “should remain a key long-term growth driver for managed care, but we see a more challenging setup in 2024 as weaker funding, risk coding changes, and lower Star ratings combine to pressure margins,” J.P. Morgan analysts wrote in an outlook report published late last year.

Insurers were also plagued in 2023 by congressional hearings and lawsuits over their claims reviews processes, sparking criticism that seniors may not be receiving the care they’re due.

Scrutiny from Washington around such practices is likely to continue.

“We are seeing both in the Senate and House a lot of interest in peeling back the layers of the onion of how big health plans are operating their Medicare Advantage programs. That’s going to continue to be an issue,” said Reed Stephens, a healthcare chair at law firm Winston & Strawn who focuses on risk.

Though it’s unlikely that legislation will be passed reforming MA, Reed said. Overall, regulatory and political turbulence should subside somewhat this year.

The rate and marketing changes were “short of the last train out of the station,” said Brookings’ Fiedler. “The administration is unlikely to want a big fight with MA plans in an election year.”

The Mark Cuban effect: Payers with PBMs will launch more ‘transparent’ options

Major pharmacy benefit managers will introduce more options billed as transparent and cost-effective to retain clients after some turned to upstart competitors last year.

PBM clients are clamoring for outcomes-based pricing, with structures tying PBM compensation to measures like adherence, according to a J.P. Morgan survey from late 2023. Clients also want transparency, whether more data sharing or full administration models.

The changes aren’t revolutionary, but they hint at ongoing distrust of major PBMs from benefits teams, J.P. Morgan said.

UnitedHealth’s Optum Rx, Cigna’s Express Scripts and CVS Caremark — which together control 80% of prescriptions in the U.S. — have all recently launched new programs, partnerships or models they say are more affordable and transparent to meet the demand.

The industry is likely to see more moves along those lines in 2024, experts say — especially as Congress considers legislation to reform PBMs. The Lower Costs, More Transparency Act passed the House in December. The bill is seen as unlikely to clear the Senate, but specific measures, like forced PBM transparency, could make it into larger legislative packages.

The passing of measures around transparency could satisfy politicians’ need for a win when it comes to drug pricing without creating meaningful reform in the sector, according to Jefferies analyst Brian Tanquilut.

Yet, momentum to do something about high drug costs will certainly carry into this year. Presidential candidates on both sides of the aisle are expected to wield the issue on the campaign trail.

“The companies in those markets are going to have to stay nimble and keep on their toes,” said Winston & Strawn’s Stephens.

M&A, especially vertical integration, carries on

Companies like UnitedHealth, CVS and Humana will continue building out networks of physical care sites in 2024. New M&A guidelines from the Department of Justice and Federal Trade Commission could raise the bar for merger approvals, but the value proposition for insurers to acquire healthcare providers is too high for them to be dissuaded, experts said.

Payers will continue to pursue as many deals “as they can find willing, available targets,” said West Monroe’s Ray.

By directing members to owned locations for medical needs, health insurers can essentially pay themselves for providing a service, keeping more revenue in-house. As a result, payers — especially those with a large presence in MA, which incentivizes organizations to better manage cost — will stay on the hunt for acquisition targets.

While healthcare M&A was relatively slow in 2023, 68% of senior leaders in the sector expect deal volume to rise in 2024, according to a survey by investment bank Jefferies.

Optum — which employs or is affiliated with around one-tenth of all doctors in the U.S. — is already eyeing M&A. The health services arm of UnitedHealth is currently pursuing an acquisition of a physician-owned clinic chain in Oregon, even as it comes off a number of big provider buys in 2023, including the multi-billion-dollar acquisitions of home health providers Amedisys and LHC Group.

Cigna has also said it plans to look for smaller strategic acquisitions to grow its business, after a potential merger with rival Humana crumbled late last year.