Managed Care Industry Trends & Insights 2025

In 2024, the managed care industry navigated significant challenges influenced by regulatory changes, higher than anticipated utilization, and the increased backlash, both public and political, against pharmaceutical benefits managers (“PBMs”). Among other challenges, blockbuster drugs continued to come off patent, scrutiny of healthcare costs intensified, and healthcare reimbursement rates declined.

A new year brings new administration into the White House and healthcare companies, including insurers, are anticipating a wide variety of potential impacts on the industry. This includes uncertainty regarding what, if any, changes will be coming to the Affordable Care Act (“ACA”) in light of the current expiration of the federal premium subsidy for ACA members at the end of 2025. Specifically, payers and providers await further clarity around funding challenges and potential reduction in insured patients should policies or budget reductions be implemented which target the ACA.

One study has suggested that 7.2MM of the 20MM ACA members could drop their coverage if the federal subsidy is not renewed. Given 90% of ACA members receive the subsidy, this means up to 4MM could lose coverage if they are unable to find alternate insurance¹. Changes such as altering, canceling or replacing the ACA could result in further operating challenges for hospitals and healthcare systems as providers and payors strive to improve patient care while operating with already thin margins. Significant disruptions to ACA could also fuel increased M&A activity to partially mitigate the financial challenges associated with lower reimbursement levels.

Conversely, the new administration may provide tailwinds for Medicare Advantage, a sentiment that was reflected by a boost in the market valuation of many publicly traded health insurers with significant Medicare Advantage business lines subsequent to President Trump’s re-election. The market is anticipating the Trump administration could lessen regulatory pressure on Medicare Advantage, which would be positive for the leading managed care providers operating Medicare Advantage plans. After his election win President Trump announced that he would nominate Dr. Mehmet Oz to head the Centers for Medicare and Medicaid Services (“CMS”); Dr. Oz has previously been a vocal supporter of Medicare and has supported “Medicare for All” as a way to reduce administrative burdens and cost on the overall healthcare system.

Medicare Advantage nonetheless will continue to pose a challenge for managed care organizations in 2025. Headwinds include the final phase of a multi-year implementation of a new risk adjustment scoring system (v28) for higher severity cases that is expected to reduce CMS reimbursement relative to the prior methodology, a new health plan STAR rating system from CMS that has made it more difficult for plans to achieve the 4-Star rating required for bonus payments, and continued elevated medical cost ratios due to higher health care utilization from members – a trend that began more noticeably in 2023 after several years of lower utilization during COVID-19. While the benefits offered through Medicare Advantage plans have historically been very comprehensive, in light of margin pressures we expect payers to actively redefine restrictions on coverage. The largest managed care corporations are expected to adapt and adjust, and part of that adjustment will likely continue through the exiting of unprofitable markets, reducing benefits packages, and investing in AI to improve Medicare Advantage pricing and profitability.

Themes in 2023 that Continued in 2024

Medicaid Redeterminations Continued Winding Down: COVID-19 era legislation requiring continuous open enrollment, which necessitated individuals on Medicaid be protected from disenrollment, continues to wind down. As early as April 2023, this prompted Medicaid/CHIP to review coverage eligibility for millions of Americans. According to CMS, enrollment peaked in April 2023 at 95.3MM participants, and as of September 2024 saw a 11% drop to 79.4MM². Levels are expected to continue to decrease, but likely remain higher than pre-COVID-19 levels due to states investing in their enrollment processes, and stickiness of enrolling when eligible.

PBMs Experienced Increasing Bipartisan Legislative Focus: Over the course of the past year the healthcare industry, and specifically PBMs have seen continued and increased efforts to introduce stricter regulations. While policy aimed at increasing pricing transparency and data reporting isn’t new, bipartisan efforts to increase regulation of insurers with PBM businesses have ramped in the last twelve months. As of September, multiple bills have been introduced aiming to reduce or eliminate rebates getting passed through to PBMs, and of greater note a bipartisan bill titled Patients Before Monopolies (PBM) Act has bipartisan support.

Themes that Emerged in 2024

CMS Star Rating Reevaluation: Following the update of the CMS Star ratings methodology in 2023, which removed certain COVID-19 era benefits, Medicare Advantage generally saw an industry-wide decrease in their ratings. Broadly, Star Ratings impact enrollment, and have a significant influence on MA plan payments through qualified bonus and rebate payments. Generally, failure to achieve a score of at least 4 out of 5 can cost health insurers hundreds of millions, which thus prompted SCAN Health Plan and Elevance Health to sue CMS over a misapplication of the new Star ratings methodology alleging that ratings were not calculated properly. Following the health plans’ victories in court, CMS announced it would recalculate all the Star 2024 quality ratings permitting that the new rating would only apply if a plan’s ratings increased under the new methodology. If the results decreased, the rating would not change. July CMS data shows that 60+ MA plan contracts from 40 insurers gained half a Star under the recalculations, with 13 insurers newly reaching the four-Star threshold to qualify for bonus payments. Subsequently, when CMS’s STAR ratings were announced for the 2025 plan year, the number of members enrolled members in plans with 4 Stars or better totaled 62.1% versus 89.5% in 2022³. Many of the nation’s largest Medicare Advantage plans sued CMS over changes in how the scores were determined, including UnitedHealth Group, Humana, Elevance and Centene, with several already successfully obtaining judgments in their favor.

Technology’s Place in Healthcare: Technology in many forms has come into the recent spotlight, whether that be cybersecurity’s role in protecting consumer data, or artificial intelligence (“AI”) and algorithms being used in claims and policy underwriting. Most notably this year UnitedHealth Group’s Change Healthcare, a technology company, experienced a ransomware cyberattack where it’s estimated data of more than 100MM individuals could have been stolen. Following suit, new HIPAA regulations have been proposed by The Office for Civil Rights, HIPAA’s parent organization, to bolster electronic health data cybersecurity requirements for healthcare providers, health plans and healthcare clearing houses. Lastly, insurance companies have had an increased focus on implementing AI tools to achieve economies of scale in their businesses. While these companies view this investment as a way to reduce overhead while increasing efficiency in customer service, risk assessment, and sales, consumer watch dog groups and lawsuits have been ramping, challenging the actual outcomes these programs provide as well as the impact they can have with preauthorization/denial trends for providers.

Implications from a New Administration

While the Trump administration’s full stance on healthcare and managed cared policy will only become clear with time, it has issued a number of related executive orders. Historically, Republican ethos favors a smaller federal government and privatization of industry, thus directly impacting Medicaid, Medicare, Medicare Advantage, and numerous public benefits and agencies. This notion is consistent with the administration’s prior activities which sought to deregulate and privatize the space. On his first day in office President Trump rescinded Biden-era policies surrounding the Medicaid Act and the Affordable Care Act. The struck provisions sought to extend Obamacare’s open enrollment period in some states, giving uninsured adults more time to sign up, and extend additional funding to states’ Medicaid programs.

Looking forward, given the transition to the Trump administration under a Republican controlled legislature, another potential area of change could be around the Inflation Reduction Act, given the Republican Party’s opposition to it when it passed. The act seeks to lower prescription drug prices by having Medicare negotiate directly with pharmaceutical companies, among other things. Similarly, while on the campaign trail President Trump discussed PBM reform, which could materialize given bipartisan support. Additionally, a federal government that is less aggressive in blocking proposed mergers may hasten more healthcare M&A activity in 2025 and beyond, as health plans continue execute consolidation and vertical integration strategies.

In summary, in 2025 the health insurance industry continues to navigate through significant turbulence including headwinds that have emerged over the past few years such as elevated medical care costs, Medicare Advantage revenue pressures, and potentially stricter legislation affecting PBMs, among others. Payers also continue to leverage opportunities for strategic growth, business line and geographic market rationalization, and improved efficiency such as the use of AI and other innovative technology. Furthermore, health insurers continue to closely monitor the new administration and its stance on key issues impacting the industry, including the potential for additional pressures and tailwinds going forward.