As the new year arrives, the health insurance industry still faces numerous challenges.

A Deloitte survey shows that amid the impact of the COVID-19 pandemic, regulatory turmoil, and rising cost pressures, only7% of health plan executiveshold a positive outlook for 2024.

Costs are soaring, and health insurers remain uncertain about how the ongoing impact of the COVID-19 pandemic will affect healthcare utilization. The Medicaid redetermination process is reshaping the coverage landscape state by state, while Medicare Advantage—the darling of the payer business—is undergoing significant regulatory changes.

Meanwhile, 2024 is a presidential election year. Washington's pressure on payers regarding claim denials and pharmacy benefit business practices adds more political uncertainty to the industry.

Here are experts' predictions for the prospects of health insurers this year.

The uninsured rate will rise

Experts say the number of uninsured Americans will almost certainly increase this year as states clean up their Medicaid rolls.

During the pandemic, continuous enrollment protections kepta record number of peopleenrolled in Medicaid. But earlier this year, states resumed eligibility checks for this safety-net program. Due to the redetermination process, approximately14.4 million Americanshave been removed from Medicaid, many for administrative reasons such as paperwork errors, even though they remain eligible.

"We will see an increase in the uninsured rate among children and possibly adults, and that is one of the consequences," said Joan Alker, executive director of the Georgetown University Center for Children and Families.

Experts say the question is how large the increase will be. Redeterminations began in April, but information lags and differences in state data reporting make it difficult to determine where people are turning for coverage and in what numbers.

Early signs indicate that some people who lost Medicaid have found plans on the Affordable Care Act (ACA) exchanges, but likely "a very small percentage," Alker said. Since open enrollment began in November, more than20 million peoplehave enrolled in ACA coverage—a record high, according to data released by the Biden administration in early January.

Experts attribute this growth partly to redeterminations and the impact of more generous federal subsidies. These subsidies are scheduled to expire in 2025, meaning ACA enrollment should remain high until then.

But not everyone who loses Medicaid will find a home in the marketplace. Employer-sponsored family coverage costs remain out of reach for many Americans. Matt Fiedler, senior fellow at the Brookings Institution's Schaeffer Initiative on Health Policy, said it is too early to determine how many people have transitioned from Medicaid termination to employer coverage—a figure that should continue to emerge in 2024.

Federal regulators have also taken a series of actions to curb inappropriate procedural Medicaid losses, such as cracking down onstates with high child disenrollment rates. However, experts say procedural terminations are unlikely to improve significantly this year.

Alker noted that in some states, such as Washington and Oregon, we do see "very promising trends" with longer continuous eligibility periods.

The government's increased ACA marketplace outreach, combined with macro factors like a strong labor market, are positive signals that individuals no longer eligible for Medicaid may find alternative coverage, whether on the ACA exchanges or through employment.

But "the uninsured rate will very likely rise. I think the question is the magnitude," Fiedler said.

Heightened cost vigilance

In 2024, medical costs are expected to grow faster than historical averages due to inflation, supply chain disruptions, and labor pressures driving up provider wages. Thesecosts are burdening employers, who are already stressed by employee mental health issues and delayed preventive screenings, which may worsen health outcomes.

As a result, employers are heavily investing in mental health and substance use disorder services. According to a survey by the Business Group on Health,seven in ten employers say mental health service access is a priority for 2024, and employers say they will turn to virtual care providers to meet the demand.

Consequently, employers are increasingly demanding integrated platforms that consolidate different benefits, continuing to move away from thepoint solutions that proliferated during the pandemic. Payers are racing to meet this demand.

This year, UnitedHealthcare plans to consolidate more than 20 standalone products into a single "supportive benefits platform," said Dan Kueter, CEO of the payer's employer and individual business, at an investor day in November.

Cigna, which focuses on employer-sponsored plans, plans to add more services to its behavioral health navigator this year to help employers personalize the platform for employees, CEO David Cordani said on a November earnings call.

As for health insurers, they may raise premiums and resist hospital reimbursement increases in 2024 to control costs, said credit rating agency Fitch Ratings.

However, this outlook is complicated by uncertainty over whether the increased healthcare utilization observed in 2023 will persist. Some payers, such as UnitedHealth and Humana, predict high utilization, while others like CVS expect it to decline.

More payers may seek mergers and acquisitions or build in-house musculoskeletal management programs to control costs, said Prateesh Maheshwari, managing director at venture capital firm Maverick Ventures. Hip and knee surgeries were common drivers of increased utilization last year.

Fitch said that despite this, publicly traded health insurers' profit margins may decline moderately in 2024.

GLP-1 coverage will increase—but slowly

Demand for GLP-1 drugs is surging, and insurance coverage is expected to increase next year, adding more pressure to an already strained national healthcare payment system. GLP-1s, or glucagon-like peptide-1 drugs, have historically been used to treat diabetes but have shown weight-loss effects.

These drugs are extremely expensive, but that has not stopped people from trying to obtain GLP-1s—whether on- or off-label. TD Cowen predicts thatGLP-1 sales could reach $102 billion by 2030, with $41 billion for obesity.

More private payers are considering covering these drugs next year, but the door to coverage is not fully open. According to a November survey by the International Foundation of Employee Benefit Plans, although76% of employers cover GLP-1 drugs for diabetes, only27% cover them for weight loss。

. However, 13% of employers are considering adding weight-loss coverage.

As insurance coverage increases, payers will use checks like step therapy to ensure only eligible patients can access the drugs, said Nathan Ray, healthcare M&A lead at consulting firm West Monroe. Therefore, access may remain limited.

Payers will also tie GLP-1 coverage to additional behavioral management programs. This trend has proven to be a gold rush for chronic disease management companies and telehealth providers, which are racing to build new weight-loss business lines that include GLP-1s.

"Things like this that include a drug opportunity accompanied by behavioral change, I think, is where the market will head in 2024," said Heather Dlugolenski, Cigna's chief strategy officer for U.S. commercial business.

Weight-loss drug advocates are also focusing on the possibility of overturning next yearMedicare's ban on covering weight-loss drugs. A growing number of lawmakers (anddrugmakers who would benefit from Medicare coverage) support a bill proposed in 2023 that would allow Medicare to cover anti-obesity drugs.

Experts say the bill is unlikely to be prioritized given Washington's busy agenda in an election year, but passage is not impossible.

Medicare Advantage will continue to grow under Washington's scrutiny

More seniors will choose Medicare Advantage plans this year, further driving growth in a program whoseenrollment has already surpassed traditional Medicare。

In MA, the government contracts with private insurers to manage care for Medicare seniors. MA has become increasingly popular, swelling last year tocover 31 million people—a boon for insurers offering the coverage, as MA can betwice as profitable for private payers as other plan types。

As a result, MA plans have beenheavily marketed, touting supplemental benefits like gym memberships or subsidized groceries. Seniors find these benefits attractive, said Brookings' Fiedler, and they may not understand thatMA plans may not coveras many medical services as traditional Medicare.

"My best guess is that MA enrollment will continue to grow in the near term," Fiedler said. "I don't think we've hit the ceiling yet."

Although higher healthcare utilization by seniors in 2023 drove up costs, insurers generally have not cut plan benefits this year as they continue to compete for members.

Major payers in MA, including Humana, UnitedHealth, Centene, and Kaiser Permanente,expanded their geographic markets for 2024, even as some lagging competitors likeCigna consider exiting MA entirely。

. However, the program is not without complications. Payers last year expressed dissatisfaction withMA rate adjustments、star ratingsand reimbursement audits,with HumanaandElevancefiling lawsuits to block these changes.

MA "should remain a long-term key growth driver for managed care, but we see 2024 as more challenging as lower funding, risk coding changes, and lower star ratings combine to pressure margins," JPMorgan analysts wrote in an outlook report released late last year.

Insurers were also plagued in 2023 by congressional hearings and lawsuits over their claims review processes, sparking criticism that seniors may not be receiving the care they are entitled to.

Washington's scrutiny of such practices is likely to continue.

"We see strong interest in both the Senate and House regarding how large health plans operate their Medicare Advantage programs. This will continue to be an issue," said Reed Stephens, healthcare chair at risk-focused law firm Winston & Strawn.

Although Stephens said legislative reform of MA is unlikely to pass. Overall,regulatory and political turmoil should ease somewhat this year。

Rate and marketing changes "are not the last train," said Brookings' Fiedler. "The government is unlikely to have a major conflict with MA plans in an election year."

The Mark Cuban effect: Payers with PBMs will launch more 'transparent' options

Major pharmacy benefit managers (PBMs) will launch more options touted as transparent and cost-effective to retain clients, aftersome clients turned to emerging competitors。

PBM clients arehungry for outcomes-based pricing, tying PBM compensation to metrics like adherence, according to a JPMorgan survey from late 2023. Clients also want transparency, whether through more data sharing or fully managed models.

These changes are not revolutionary, but they hint at thepersistent distrustbenefit teams have toward major PBMs, JPMorgan said.

UnitedHealth's Optum Rx、Cigna's Express Scriptsandand CVS Caremark—which together control 80% of prescriptions in the U.S.—have all recently launched new programs, partnerships, or models claiming to be more affordable and transparent to meet demand.

Experts say the industry may see more such initiatives in 2024—especially as Congress considers legislative PBM reform. The Lower Costs, More Transparency Actpassed the House in December. The bill is seen as unlikely to pass the Senate, but specific measures, such as mandating PBM transparency, could make it into larger legislative packages.

Passing transparency measures could satisfy politicians' need for a win on drug pricing without producing substantial reform in the area, said Brian Tanquilut, an analyst at Jefferies.

However, the momentum to address high drug prices will certainly carry into this year. Bipartisan presidential candidates are expected to use the issue on the campaign trail.

"Companies in these markets must remain agile and stay vigilant," said Winston & Strawn's Stephens.

M&A, especially vertical integration, continues to advance

Companies like UnitedHealth, CVS, and Humana will continue building networks of physical care sites in 2024. The Department of Justice and Federal Trade Commission'snew merger guidelinesmay raise the bar for merger approvals, but the value proposition of insurers acquiring healthcare providers is too high to be deterred, experts say.

Payers will continue to pursue as many deals as possible "as long as they can find willing, available targets," said West Monroe's Ray.

By directing members to their own sites for medical needs, health insurers can essentially pay themselves for services, keeping more revenue in-house. Therefore, payers—especially those with significant MA exposure, since MA incentivizes organizations to better manage costs—will continue to look for acquisition targets.

Although medical M&A was relatively slow in 2023,68% of senior industry leadersexpect deal volume to rise in 2024, according to a survey by investment bank Jefferies.

Optum—which employs or is affiliated with about one in ten U.S. physicians—is already considering M&A. The health services division of UnitedHealthis currently seeking to acquirea physician-owned clinic chain in Oregon, even as it just completed a series of large provider acquisitions in 2023, including the multibillion-dollar purchase of home health providersAmedisysandLHC Group。

Cigna has also said it plans to seek smaller strategic acquisitions to grow its business, aftera potential merger with rival Humanafell apart late last year.