Elevance Restructures Medicare Business, Exits Standalone Part D Plans

Elevance Health, one of the largest health insurers in the United States, has announced significant changes to its Medicare business strategy, including exiting standalone Medicare Part D plans and trimming its Medicare Advantage (MA) footprint. The move comes as the company aims to improve profitability and focus resources on more sustainable market segments.

Medicare Advantage Reduction and Part D Exit

Elevance CFO Mark Kaye revealed at the Wells Fargo Healthcare Conference in Boston that the company will be exiting Medicare Advantage plans where "long-term economics are not sustainable." This decision will affect approximately 150,000 of Elevance's 2.3 million individual and group MA members.

In a more dramatic move, Elevance announced its complete withdrawal from standalone Medicare Part D plans. This exit will impact around 400,000 Part D enrollees, making Elevance the sixth-largest standalone Part D provider to leave the market. Kaye emphasized that this decision "does not reflect our underperformance or a broader Part D cost concern," but rather a strategic shift to concentrate resources on more impactful areas.

Focus on Dual Special Needs Plans

As part of its restructuring, Elevance plans to allocate more resources to Medicare Advantage and dual special needs plans (D-SNPs). D-SNPs, which cover individuals eligible for both Medicare and Medicaid, typically offer higher margins and align with recent regulatory changes.

The company is likely capitalizing on a Centers for Medicare & Medicaid Services (CMS) rule finalized last spring, which moves dual-eligible members receiving Medicaid and Medicare benefits from different payers into one plan run by their Medicaid insurer. Given Elevance's broad Medicaid footprint, this shift is expected to catalyze MA growth, especially as the D-SNP population is forecasted to increase.

Industry-wide Challenges and Financial Implications

Elevance's strategic shifts come amid broader industry challenges, including rising costs for MA members and policy changes that have reduced reimbursement rates. The company is also grappling with the loss of its legal bid to improve its 2025 star ratings, a setback expected to cost the insurer $375 million next year.

While Elevance reaffirmed its 2025 guidance, it noted that Medicaid margins are not expected to improve in the latter half of the year, contrary to previous expectations. This news, combined with the announced restructuring, led to a 4% drop in Elevance's stock price following the announcement.

As the pharmaceutical and healthcare insurance landscape continues to evolve, Elevance's strategic pivot underscores the ongoing challenges and opportunities in the Medicare market. The company's focus on sustainable growth and targeted resource allocation reflects a broader industry trend of adapting to changing market dynamics and regulatory environments.