Five forces are converging to stall growth of the Medicare Advantage industry over the next decade—halting momentum enjoyed since the 1990s. While inflation and immutable demographic trends are recurring characters in this story, trends in trust and product quality reveal that carrier actions also contribute to the five stagnation forces:
- Increased member acquisition costs
- Fewer age-ins
- Declining member lifetime values
- Declining innovation on both product and member services
- A rapidly changing go-to-market landscape
1 – Increased Member Acquisition Costs: Marketing and Sales
Since Covid, inflation has left its mark across the marketing funnel. Competition for cost per click is ensuring the Paid Search dollar doesn’t go as far, especially during the Annual Enrollment period peak. Postage rates make key Direct Mail campaigns costlier at 120% the rate of core inflation. Meanwhile in upper funnel, cost-per-thousand (CPM) was increasing by 5% per year shortly before 2024, leading to costlier brand marketing.
On the sales front, expenses are climbing too. On-target earnings (OTEs) for captive field agents have risen 5-10% per year since Covid. Agent turnover rate has also increased, lowering sales productivity, as newer agents need more training and “at bats” to sell more.
The takeaway: Costs are not going down, but better audience targeting over the next decade can make acquisition budgets drive a greater impact.
2 – Fewer age-ins
All Baby Boomers will have turned 65 by 2030, spelling an end to the era of rapid growth in newly eligibles. Between 2022 and 2027, an estimated 4.2-4.3 million individuals turn 65 per year. By 2040, the annual age-in population will be only 70% of that, around 3.1 million.
Medicare Advantage penetration of the eligible population also seems to be approaching a plateau around 55%. The sum effect is that annual net new enrollments in Medicare Advantage will trend downward in the decade to come. (American Community Survey, NCHS birth data, CMS.gov data)
The takeaway: In order to sustain growth, the industry will have to nurture product attractiveness and clinical maturity. In other words, insurers will have to work harder to grow.
3 – Declining Member Lifetime Values
Member Lifetime Value (MLV) is a member’s inbound cash flow minus outbound cash flow over a member’s tenure with a single insurer. All three parts of the equation are driving down MLV: members are disenrolling more frequently in the face of declining benefits, stagnant CMS payments and mounting claims costs. These claim costs can trace to Medicaid eligibility changes affecting Dual-eligible Special Needs Plan (DSNP) members, added dental and vision benefits, and forgone preventive care during Covid.
The takeaway: CMS payments are not keeping pace with the costs of servicing the neediest members, and a more productive partnership with CMS will be key to remedying this shift.
4 – Declining Innovation on Product and Member Services
Product innovation – adding fitness programs or dental benefits to health plan benefits for example – characterized recent years of Medicare Advantage. Inflation, once again, acts as a headwind here by discouraging maintenance of characteristic benefits and by reducing the value of food cards. But abandoned benefits stem from other sources too—in-home nurses’ visits, for example, received negative publicity with accusations of abundant fraud. Consequently, they became deemphasized.
Member service innovation might temper member disillusionment, but it occurs in a narrow domain. Government regulations require many communications, driving members to largely ignore most insurer messages. Another potential communication channel, insurer mobile apps, suffer low adoption rates due to competition with separate provider apps and limited data portability and functionality.
The takeaway: Innovation can happen under constraints, but a return to quality can light the path forward through greater efficiency across acquisition, member retention, and care delivery.
5 – Rapidly Changing Go-to-Market Landscape
Unit economics and member preferences comprise serious threats to the traditional channels for reaching the Medicare population. Linear TV is less captivating for seniors, direct mail is being hit with inflation, and effective paid search now requires commitment to bidding wars.
Insurers are rethinking their distribution channels, too. Third-party call centers and aggregators rose to importance around 2010, as Medicare Advantage welcomed age-ins at unprecedented volumes. However, aggregators have shown to generate customer confusion while attracting low lifetime value members, and third-party call centers may have eroded trust by their less than honest call tactics.
The takeaway: Winning over the next decade will look a few different ways. We present more data and additional considerations in our whitepaper, which you can download below.
Download our whitepaper, “The next decade of Medicare Advantage: 2025 and beyond”
Learn how the next decade will reward Medicare Advantage leaders who embrace agility, analytics, and a member-first approach.
