Over the past several years, the growth seen by Medicare Advantage (MA) carriers and brokers has begun to stagnate. One of the forces driving this stagnation is the decline of Member Lifetime Value (MLV). MLV is a member’s inbound cash flow, minus outbound cash flow, over a member’s tenure with a single insurer; essentially, the expected net profit from a member for the time they are expected to remain with the carrier, discounted in future years by a carrier’s weighted average cost of capital (WACC). Over the past four years, three primary forces have concurrently exerted downward pressure on average Medicare Advantage MLVs:
- Declining member tenure
- Stagnant CMS payments
- Increasing claims costs
1. Declining member tenure
With a plateau in age-in Medicare Advantage penetration beginning in roughly 2022, an increasing number of new members are “switchers” from other carriers. Having already switched carriers at least once, these members may be more likely to switch again, regardless of actions taken by the carrier. With members remaining with a single carrier for a shorter period, the carrier has fewer years to extract value from that member.
2. Stagnant CMS payments
Over the past two years, carriers have seen lower reimbursements from CMS to pay for their members’ claims. In 2024, CMS payments under the Physician Fee Schedule adjusted for inflation began declining by 1.25%–in 2025, CMS payments will decline an additional 2.93%. However, with the policies in the CY 2026 Rate Announcement released by CMS last week projected to result in an increase of 5.06% in MA payments, this factor is expected to moderate for plan year 2026.
3. Increasing claims costs
Possibly the largest driver of declining MLVs, claims costs have been increasing for the past few years. During COVID, most members chose to delay screenings, tests, and non-emergency procedures (Journal of Clinical Oncology). From 2022 onward, the repercussions of these delays emerged, resulting in more serious—and costlier—diagnoses once members returned to the doctor (UC Davis Health). Members in the past few years have also been receiving the elective procedures that they delayed during the pandemic. It is likely that, over the next several years, these impacts of the pandemic will subside as members return to normal rates of screenings, tests, and non-emergency procedures.
Additionally, product decisions made during the 2020-2022 Plan Years to attract customers often resulted in coverage for expensive services not previously included, such as vision, hearing, and in-home support services. Finally, CMS temporarily expanded the definition of dually eligible members during the pandemic, but once these members began to be dropped in June 2023, carriers had fewer profitable DSNP members—and those that remained were less healthy and more expensive to service.
Toward higher Member Lifetime Value
Business leaders in the Medicare Advantage industry must adapt to the changes to Member Lifetime Value that have been observed over the past four years:
- Better audience targeting can allow a carrier to isolate and target audiences by their estimated mean lifetime value and to only invest in acquisition marketing and sales up to the point where the marginal acquisition cost is estimated to be equal to the present value of future cash flows.
- Adoption of vertical integration can result in tighter communication and better information from the carrier, leading to longer member tenure and higher lifetime values.
- Digital and digitally assisted application technologies can improve speed, accuracy, and applicant satisfaction, reducing buyers’ remorse and the resulting switching behavior that decreases member tenure—with longer tenure, a higher MLV is possible.
For more information on how to succeed in the face of declining Member Lifetime Value, and other challenges in the MA industry, read our executive whitepaper: “The next decade of Medicare Advantage: 2025 and beyond.”
Download our whitepaper, “The next decade of Medicare Advantage: 2025 and beyond”
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