Since its introduction in 1997, Medicare Advantage (MA) has been a growth engine for US health plans—offering generous margins, explosive enrollment, and policy tailwinds. That era might be coming to an end.
Between tighter regulatory oversight, rising medical costs, and a turbulent Star ratings landscape, the playbook that once made MA so profitable is no longer viable. If MA plans want to preserve margins and stay competitive, they must undergo a strategic shift—one that prioritizes real-time data, technology-led interventions, and a renewed focus on member outcomes.
Cracks in the Foundation
Several forces are converging to put unprecedented financial pressure on MA plans:
1. Regulatory Clampdown on Cost Controls
Historically, MA relied on tools like prior authorization (PA) and aggressive claims review to manage medical expenses. That’s changing fast.
- CMS reforms now require MA plans to follow fee-for-service (FFS) Medicare coverage rules, sharply limiting their ability to deny or delay care through PA.
- New rules restrict retroactive enforcement of PA decisions and tighten the scope of claims denials.
- Congressional momentum is building for further reforms, and the current CMS administrator has promised to enforce greater uniformity and transparency across plans.
While popular with lawmakers and beneficiaries, these changes effectively take the “managed” out of managed care—exposing MA plans to higher utilization and cost growth.
2. Declining Star Ratings
For years, Star bonuses were a key lever for reinvesting in benefits and driving margin. But performance is slipping:
- In 2025, the average MA Star rating dipped below 4.0 for the first time since 2015.
- The share of contracts at 4 Stars or above dropped to 40%, with just 62% of members enrolled in high-performing plans (down from 76% a year ago).
- Multiple changes by CMS—including the introduction of the Tukey outlier deletion, new weighting formulas, and the phaseout of manual chart reviews—have made the program harder to game and tougher to master.
Many plans lost operational rigor during the pandemic. That, combined with CMS’s evolving methodology, has turned Stars into a tougher battleground.
3. Risk Adjustment Reforms Shrinking Revenue
CMS’s rollout of risk model V28 is already having a major impact:
- Once fully phased in by 2026, V28 is expected to reduce rates by more than 7%—a dramatic shift at a time when utilization is spiking.
- CMS is accelerating toward 100% RADV audits, which could further cut revenue for plans found to be overcoding.
- Proposals under discussion include:
- Reducing or eliminating coding derived from health risk assessments and manual chart reviews
- Implementing a sliding scale coding intensity factor based on each plan’s coding behavior
This is all happening amid growing pressure from lawmakers, some of whom believe MA is overpaid by $80 billion annually. Regardless of whether that figure holds up to scrutiny, the perception of abuse is driving policy.
The Path Forward: What Plans Must Do
The old levers—claims denial, PA, and aggressive coding—can no longer carry the weight. Plans must pivot to a new operational model that is more sustainable, member-centered, and data-driven.
Here’s where they should start:
Invest in real-time analytics to drive quality improvement
To succeed in the evolving Medicare Advantage landscape, plans must move beyond retrospective reporting and adopt a more proactive approach to quality management. This means continuously tracking performance across dozens of Star measures, enabling timely outreach to members and providers, and using predictive analytics to identify and address potential gaps before they impact scores.
Improve cost trend visibility and intervene earlier
Health plans need to transition from static cost reports to real-time tracking of both global and member-level cost trends. By leveraging predictive analytics, they can identify rising-risk members early and intervene before costly episodes occur. Integrating clinical and pharmacy data is essential to gain a comprehensive view of member risk and drive more effective, targeted interventions.
Reduce churn by enhancing member experience
Medicare Advantage churn has increased significantly—from 10% in 2017 to 17% in 2022—fueled by plan consolidation and the volatility of dual-eligible populations. This churn isn’t just a retention challenge; it’s a major revenue drain. For example, a plan with 100,000 members and 15% annual churn stands to lose between $180 million and $225 million in revenue. To protect margins, investing in member satisfaction, personalized experiences, and effective retention tools is no longer optional—it’s a financial necessity.
Adopt AI—but do it responsibly
Leading Medicare Advantage plans are beginning to explore agentic AI and machine learning to enhance member engagement, improve risk scoring, and streamline care coordination. However, the stakes are high—successful adoption requires AI to be clinically guided, privacy-preserving, and carefully designed to avoid member abrasion. When implemented responsibly, AI can significantly lower administrative costs while enabling scalable, high-touch interventions that improve outcomes and efficiency.
Bottom Line
Medicare Advantage remains a critical business line—but it’s no longer a guaranteed profit center. The next generation of winning plans will be those that evolve rapidly: investing in smarter infrastructure, deeper member insight, and operational resilience.
For more detailed coverage on this topic check out the corresponding sister article “Medicare Advantage Needs To Pivot To Thrive Again” published on The Healthcare Labyrinth.
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About Lilac
Are you one of the many plans struggling with Star achievement? Lilac Software has created a state-of-the-art technology platform to help MA plans drive Star performance. Our NCQA-certified and PQA-licensed engine has been specifically designed to help you implement the best practices above, including:
- Closing care gaps and medication adherence
- Running measures as often as daily
- Publishing daily and weekly gap lists for research, plan departments, and providers
- Improve member satisfaction with insight related to HOS and CAHPS
- Drive EHO4all (the new HEI) and improvement measure performance
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