This is Jacob Everson with the Becker's Payer Issues podcast. Here's your biweekly industry news update for February 6. Moody's has revised its outlook for the health insurance sector to negative, citing continually high medical costs that are expected to constrain earnings growth in 2025. In a January reports, analysts discussed the significant challenges insurers are facing across their Medicare Advantage, Medicaid, and commercial businesses.
Rising medical costs driven by inflation, prescription drug spending, and increased utilization of behavioral health services are outpacing reimbursement rates and premium increases. Proposed legislation targeting PBMs and the potential expiration of ACA premium subsidies in 2026 could also further increase pressures.
Amid these change challenges, Moody's has assigned a positive outlook to only one major insurer, Hellevance Health, reflecting its strong market position and operational performance. In contrast, Humana and Healthcare Service Corporation have been given negative outlooks. Humana's negative outlook is driven by its heavy reliance on Medicare Advantage and HCSC, which is the parent company of
five Blue Cross plans. They were given a negative outlook because of their exposure to Medicaid redeterminations and competitive pressures within the core commercial business. Medical costs are rising at their fastest rate in thirteen years, with commercial group spending projected to grow by 8% in 2025. Individual market spend is expected to increase by seven and a half percent, and MA spending is forecast to rise by between somewhere of 57%.
Competitive and regulatory constraints are also limiting the insurer's ability to offset rising costs through premium increases. Medicare Advantage specifically accounted for about 20% of industry earnings in 2023, Lower reimbursement rates from CMS and regulatory limits on benefit reductions have led to higher medical loss ratios and lower earnings.
The Inflation Reduction Act has also exacerbated costs by eliminating the 5% coinsurance requirements for individuals in the catastrophic phase of prescription drug plans, which has led to increased utilization of high cost medications. And finally, with Medicaid, enrollment did decline in 2024 due to redeterminations, but the ACA market saw record growth during
the last enrollment period. So Moody's expects overall enrollment across markets to improve in 2025 with Medicaid stabilizing and MA growth remaining steady. The potential expiration, though, of ACA subsidies could lead, though, to significant enrollment declines. And then there's PBMs facing bipartisan scrutiny. A proposed federal legislation could require insurers to divest their pharmacy businesses, which would also potentially weaken earnings.
On the federal level, members of Elon Musk's Department of Government Efficiency have been granted access to the payment and contracting systems at CMS. Department representatives have been on-site at CMS's offices this week, which is the week of February 5, examining, spending data for potential fraud or waste, and reviewing the agency's organization and staffing.
Doge representatives had not yet been granted access to databases that include personal health information of Medicaid and Medicare beneficiaries. The Doge representatives have only read have read only access, meaning they cannot change any material viewed. President Donald Trump created the department referred to as DOGE by officials in November to cut wasteful spending and reduce operational inefficiencies.
He appointed Elon Musk, who, of course, is the CEO of Tesla, SpaceX, and Twitter to lead the initiative. Doge aims to cut federal spending by $1,000,000,000,000 with Medicaid emerging as a likely target. On the topic of Medicaid, the Centene is declaring the redeterminations era over. On February 4, CEO Sarah London told investors the company is anticipating a more stable period
for Medicaid enrollment this year. She said as we move through 2025, we're looking forward to turning the page on the redetermination era, returning to overall Medicaid stability and working closely with state partners on innovations to deliver health care and better health to communities.
In 2023 and 2024, of course, states determine the eligibility of Medicaid beneficiaries for the first time since 2020, which was barred, in terms of removing beneficiaries during the COVID public health emergency. Prior authorization reform is remaining a major advocacy priority for provider trade groups this year, and several state lawmakers have also introduced legislation to bring changes to the process.
The said the commercial insurers should be held accountable for ensuring appropriate access to care, including by reducing the excessive use of prior auth. The group is also seeking to reduce administrative burdens that take clinicians away from the bedside and contribute to burnout. The Medical Group Management Association is seeking to eliminate or significantly reduce the volume of prior authorization and other prerequisites for coverage.
The AMA and the Federation of American Hospitals are also both urging Congress to pass the improving seniors timely access to care act, which aims to reform the Medicare Advantage specific prior authorization process. That would establish an electronic prior authorization process for MA plans that includes a standardization for transactions and clinical attachments and and some more transparency around how those prior auth requirements are put to use.
At the state level, lawmakers in Indiana and Rhode Island have introduced prior authorization reform legislation just this year alone. UnitedHealth Group is raising concerns with the SEC after hedge fund manager Bill Ackman suggested that the company's profitability could be, quote, massively overstated. He wrote on x, formerly known as Twitter, saying, if I still shorted stocks, I would short UnitedHealthcare.
He suggested that the SEC conduct a thorough investigation of the company and said, quote, I would not be surprised that the company's profitability is massively overstated due to its denial of medically necessary procedures and patient care. He later deleted that post. Mister Ackman is a billionaire and the founder of hedge fund,
Pershing Square. He has a million and a half followers on x. A spokesperson for UnitedHealth told Bloomberg that the company reached out to the SEC about those comments. Shares of the company fell 4.3% on February 5. United said, quote, health insurance has long been subject to significant regulatory oversight
and earnings caps. And he claims that health insurers, which typically have low to mid single digit margins, can somehow over earn or grossly uninformed about the structure and strong regulatory oversight of the sector. And finally, a federal court in Tennessee has upheld a jury's decision in favor of a former BCBS of Tennessee employee who filed a religious discrimination lawsuit after she was terminated for refusing to comply with the company's COVID nineteen vaccination mandate.
The judge issued a final ruling on January 31 confirming that Blue Cross must pay the plaintiff a total of more than $500,000 in damages following a jury's original verdict last June. A jury had initially awarded the plaintiff over $680,000, but it wasn't in accordance with federal rules for employers with more than 500 employees, and so the punitive damages were reduced to 300,000. The jury had originally found the Blue Cross had not met its legal obligation to offer reasonable accommodations
under the Civil Rights Act. It's also part of a broader litigation against BCBS of Tennessee with a class action lawsuit filed by a group of former employees who were also terminated for refusing the vaccine on religious grounds. The company terminated 41 employees who had requested religious exemptions, for a mandate that affected 900 customer facing roles.
It's also part of a larger trend because back in November, a federal jury ordered Blue Cross Blue Shield of Michigan to pay nearly $13,000,000 in damages to a former employee who said she was wrongfully terminated for refusing to receive the COVID vaccine back during the pandemic. If you'd like the latest health insurance industry news delivered straight to your inbox every morning, subscribe to the Becker's Payer Issues e newsletter on our website at beckerspayer.com.