Rising Pressures on Health Plans in 2025

As we head into 2025, U.S. health plans are facing growing pressures stemming from a mix of economic challenges, regulatory complexities and rising consumer expectations. These issues are threatening the financial sustainability of health insurers, impacting the quality of care they can provide, and the overall health outcomes for their members.

One of the most pressing concerns is the premium deficiency issue faced by major health insurers like Aetna. This issue arises when health plans collect premiums that are insufficient to cover the rising costs of healthcare. With increasing medical expenses (e.g., unit costs) and utilization, health plans—particularly Medicare Advantage (MA) plans—are struggling to balance premium revenues with the high cost of care.

The situation is compounded by the growing use of high-cost medications such as GLP-1 drugs (e.g., Ozempic, Wegovy) for managing chronic conditions like diabetes and obesity. While these treatments offer significant long-term health benefits, they place a heavy financial burden on insurers in the short term. Additionally, the introduction of non-medical benefits, such as prepaid cards for food, housing and transportation is creating additional upfront costs for health plans.

Furthermore, the residual impact of Medicaid Redeterminations continues to pose challenges for Medicaid plans. After the temporary suspension of eligibility checks during the pandemic, the resumption of redeterminations has resulted in millions of people losing coverage. This has disrupted Medicaid membership and contributed to financial instability for plans serving these populations.

As these challenges converge, health plans must find ways to remain financially viable while continuing to deliver quality care. This paper explores the top five issues facing health plans heading into 2025.

Top 5 Issues Facing Health Plans in 2025

1. Rising Utilization and Medical Expenses in Medicare Advantage

The rising utilization of healthcare services is one of the most significant challenges for health plans, especially in the context of Medicare Advantage (MA) plans. The aging baby boomer population, coupled with the increasing prevalence of chronic conditions, is leading to higher-than-expected medical expenditures. This includes increased demand for specialty drugs, hospitalizations and long-term care services.

A major factor driving these costs is the growing utilization of high-cost medications, particularly GLP-1 receptor agonists (e.g., Ozempic, Wegovy) used to manage obesity and diabetes. These medications, while highly effective, come with a hefty price tag, placing financial pressure on health plans that are already facing premium deficiencies.

Despite the long-term benefits of these medications in reducing complications associated with chronic conditions, health plans must grapple with their immediate impact on premium revenues. With the rising cost of drugs and hospital care, MA plans are struggling to maintain financial stability.

Key Strategies for Health Plans:

• Increase investments in Value-Based Care: By continuing to move from a fee-for-service model to value-based care models, health plans can better manage chronic disease and reduce the need for costly hospital admissions and emergency visits.
• Enhance Care Coordination: Proactive care management, especially for high-risk patients, can help prevent costly interventions and improve patient outcomes.
• Use Predictive Analytics: Leverage data analytics to identify members at risk for high-cost conditions and intervene earlier to prevent escalating medical costs.

2. The Ongoing Impact of Medicaid Redeterminations

The Medicaid Redetermination process, which resumed after the temporary suspension during the pandemic, is having a lasting impact on Medicaid plans. As states begin conducting eligibility reviews again, millions of individuals have lost their coverage due to ineligibility or failure to re-enroll. This disenrollment process has led to instability in Medicaid membership and has added financial pressure to health plans that serve these populations.

The loss of Medicaid members has already been substantially realized, but the residual effects of these eligibility checks are still unfolding, especially in states with large Medicaid populations. As Medicaid enrollment shrinks, health plans must adapt to the increased cost burden of providing care to those who remain in the program, which are often high-need patients with complex health issues.

Key Strategies for Health Plans:

• Proactive Outreach: Health plans must engage with disenrolled members to help them transition to other forms of coverage, such as Marketplace plans, to avoid coverage gaps and reduce the likelihood of care disruptions.
• Strengthen Partnerships with State Agencies: Collaborating closely with state Medicaid programs can help health plans better manage enrollment processes and ensure that eligible members maintain continuous coverage.
• Focus on High-Risk Populations: By concentrating efforts on managing high-risk Medicaid enrollees, health plans can mitigate the impact of rising healthcare costs and improve outcomes for vulnerable populations.

3. Managing Premium Deficiencies and Financial Sustainability

The issue of premium deficiency is particularly acute in Medicare Advantage and Medicaid plans, where the premiums collected are often insufficient to cover the rising costs of care. The misalignment between premiums and healthcare expenditures has led to higher-than-expected medical loss ratios (MLRs) for many insurers, threatening the financial viability of these plans.

Additionally, with non-medical benefits like prepaid cards for food, transportation, and housing becoming more common, health plans are incurring additional costs. These benefits, while improving overall health outcomes by addressing social determinants of health, come with significant upfront financial burdens.

Health plans must find ways to balance rising healthcare costs with competitive pricing, ensuring that premiums are sustainable while providing high-quality care and value-added services.

Key Strategies for Health Plans:

• Optimize Cost Management: Implement data-driven approaches to better predict and control healthcare costs, both administrative and medical expenses, ensuring that premiums align more closely with the care provided.
• Explore Alternative Pricing Models: Health plans can work with providers to implement risk-sharing agreements that link reimbursement rates to outcomes, potentially reducing the burden of high-cost interventions.
• Increase Operational Efficiency: Streamlining processes and improving the efficiency of care delivery will help manage costs and improve the overall member experience.

4. Regulatory Challenges and Compliance Burdens

Health plans in 2025 will face an increasingly complex regulatory environment. New requirements related to health equity, consumer protections, social determinants of health (SDOH) and data privacy are just a few of the challenges insurers must navigate. Particularly, Medicare Advantage plans will face stricter reporting requirements and quality measures that will impact both reimbursement and market positioning.

Health plans must ensure compliance with the No Surprises Act and price transparency regulations, both of which require insurers to provide clear and accessible information about costs, networks, and coverage. These regulations, while beneficial to consumers, can create significant administrative burdens for health insurers.

Key Strategies for Health Plans:

• Invest in Compliance Technologies: Health plans must invest in technologies that help them navigate the complex regulatory environment and stay compliant with changing rules.
• Improve Transparency: Providing clear, understandable information to members about pricing, coverage options and benefits will build trust and ensure compliance with new transparency regulations.
• Strengthen Internal Training: Educating staff about new regulatory requirements and ensuring that compliance teams are well-equipped to handle new policies will be critical to avoiding penalties.

5. Digital Transformation and Member Engagement

Digital health solutions, including telemedicine, AI-driven care management and mobile health apps are transforming how health plans deliver care and engage with members. However, the integration of these technologies into health plan operations requires significant investment in infrastructure and cybersecurity.

Furthermore, digital health platforms must be accessible to all members, particularly those who are less tech-savvy or who lack reliable internet access. Engaging members through digital tools can improve care coordination, reduce costs and enhance patient satisfaction, but these initiatives must be balanced with efforts to ensure equitable access to technology.

Key Strategies for Health Plans:

• Enhance Digital Access: Health plans should invest in user-friendly platforms that allow all members to engage with their care digitally, from scheduling appointments to accessing care advice and managing prescriptions.
• Leverage Artificial Intelligence: Health plans can use AI and machine learning to predict high-risk members and intervene earlier, improving outcomes while reducing costs.
• Strengthen Data Security: As digital health solutions grow, health plans must prioritize cybersecurity to protect member data and comply with data privacy regulations.

Conclusion: Navigating the Complex Landscape of 2025

The healthcare landscape for health plans in 2025 is marked by significant challenges and opportunities. From rising medical expenses and the financial pressures of premium deficiency to the increasing use of GLP-1 medications and the growing need for non-medical benefits, health plans must find innovative ways to remain financially viable while providing high-quality care.

By focusing on data-driven care models, value-based arrangements and community partnerships, health plans can position themselves to thrive in the complex healthcare environment of 2025 and beyond. 

How Alvarez & Marsal Can Support Health Plans in 2025

As health plans face increasing pressures in 2025, including rising medical costs, regulatory changes and the shift toward value-based care, Alvarez & Marsal’s Healthcare Industry Group (A&M) is uniquely equipped to help navigate these challenges. With a strong track record in healthcare strategy, operational improvement and financial performance, A&M offers comprehensive solutions that address the core needs of health plans looking to thrive in a dynamic market. Key areas where A&M can provide critical support:

• Operational Efficiency:
  • Streamlining processes to improve cost management, reduce administrative overhead and enhance overall performance.
  • Implementing best practices in care delivery to optimize outcomes while controlling costs.
• Regulatory Compliance:
  • Guiding health plans through evolving Medicare Advantage, Medicaid and ACA regulations to ensure compliance.
  • Helping health plans adapt to new reimbursement models and government requirements.
• Value-Based Care Optimization:
  • Supporting health plans in integrating and scaling value-based care models that align incentives and improve patient outcomes.
  • Developing strategies to optimize medical loss ratios (MLRs) and navigate complex risk adjustment processes.
• Digital Transformation and Data Analytics:
  • Leveraging AI and predictive analytics to improve care coordination, member engagement and decision-making.
  • Enhancing operational decision-making with advanced data tools that drive better outcomes and efficiency.
• Strategic Growth and Sustainability:
  • Helping health plans identify new growth opportunities through market expansion or service diversification.
  • Providing tailored strategies for achieving long-term financial sustainability and competitive positioning.

With these services, A&M can help health plans navigate the challenges of 2025 and emerge stronger and more competitive in the evolving healthcare landscape.