Medicare Advantage plans have traded as secular growth stories for most of the past decade. In 2024, that narrative hit the wall of actual medical costs.
UnitedHealth, Humana, CVS/Aetna, and Centene all reported medical cost acceleration in their MA books that surprised consensus estimates. The surprises were not random—they reflected a systematic underpayment of medical cost trends in benefit pricing, a consequence of the actuarial difficulty of projecting utilization patterns in a rapidly growing population of Medicare beneficiaries who had been deferring care during the pandemic. What makes the episode instructive for future positioning is that the hospital rate data had been signaling accelerating costs before the earnings announcements. Specifically, MedPricer-accessible MA rate data for the same geographies showed material rate increases in the quarters preceding the earnings misses.
The mechanism is this: hospital systems negotiate MA rates on annual or multi-year cycles. When those contracts renew at higher rates, the rate increases appear in hospital transparency files at the time of disclosure (typically annual). Claims experience under the new contracts begins flowing immediately. Actuarial projections embedded in premium bids—which are set 18 months in advance—may not fully reflect the new rate environment if the rate increases exceeded actuarial trend assumptions.
A fund monitoring MedPricer’s MA rate data by geography and by the major MA operators can construct a forward estimate of medical cost trend for specific plans in specific markets. The analytical requirement is knowing which MA plans are dominant in which markets—information available from CMS enrollment files—and then querying MedPricer for hospital rates paid by those plans in those markets over time.
The geographic concentration of MA enrollment adds leverage to this analysis. Humana’s MA business, for example, has historically been concentrated in Florida, Texas, and a handful of other southern states. Rate acceleration in Florida hospital markets has a disproportionate effect on Humana’s MLR relative to operators with more geographically diversified MA books. A fund that identified accelerating hospital rates in Florida through MedPricer data in 2023 would have had an early signal for Humana’s subsequent medical cost miss.
The counter-thesis is CMS benchmark rate changes. MA payment rates are set annually by CMS as a percentage of traditional Medicare costs by county. When CMS increases benchmark rates—as it has in several recent cycles to address health equity concerns and demographic adjustments—MA plans receive more revenue even if their medical costs are also rising. The net margin effect depends on whether the benchmark increase exceeds the cost increase, a calculation that requires modeling both sides.
MedPricer provides the cost-side input; CMS advance notices provide the benchmark-side input. A fund that can model both has a more complete picture of MA plan economics than one relying solely on management guidance, which is systematically optimistic at the beginning of each plan year.
The MA trade is ultimately about information timing. Quarterly earnings releases are backward-looking. Hospital rate data is more contemporaneous. In a sector where consensus models are built on assumptions that available data can test, that timing advantage is significant.
