For decades, Medicare Advantage has been one of health care’s most profitable businesses. Millions of new members were coming online every year as baby boomers aged into Medicare. Enrollment grew like clockwork. Insurers got paid by the federal government to care for seniors. And they competed fiercely for members with gimmicks like $0 premiums, dental and vision benefits, gym memberships, transportation services, food cards, and overly generous over-the-counter drug allowances. Grow fast. That was the prescription for success.
Not anymore. These days, the prevailing Medicare Advantage strategy can be summed up in four words: Slow down. Lose members. Take less money. Get profitable. That mindset helps explain why insurers are dropping plans, leaving counties, paring back supplemental benefits, and willingly accepting membership declines—even as Medicare Advantage plans continue to rake in more money from the federal government. The Medicare Advantage bubble isn’t bursting. It’s being deflated.
The retreat is already substantial
For 2026, the number of individual Medicare Advantage plans available nationwide fell 9%, to 3,373 plans, according to KFF’s analysis of CMS data. Some of the industry’s largest companies substantially reduced their geographic footprints. UnitedHealthcare exited 225 counties while entering only 14. Humana exited 198 and entered five. Elevance exited 181, CVS/Aetna 160, and Centene 104. The consequences weren’t theoretical.
Approximately 2.6 million people—13% of individual MA-PD enrollment—were enrolled in plans terminated for 2026. A year earlier, roughly 1.3 million beneficiaries had faced plan terminations. And the retrenchment appears likely to continue into 2027.
Humana has indicated additional plan exits could affect roughly 600,000 members, while UnitedHealthcare, CVS/Aetna, Elevance and Centene have all discussed strategies emphasizing margin improvement, benefit changes, membership rationalization or additional market exits.
That raises the obvious question: Why would health insurers walk away from the fastest-growing part of Medicare? Because enrollment is no longer the metric that matters most.
Medicare Advantage’s economics changed
Insurers treated Medicare Advantage like a land grab for years. The business model encouraged it. Sign up a new county. Offer enhanced benefits. Aggressively pay brokers. Grow membership and amortize your administrative expenses over a larger pool. Do that while medical costs were stable and reimbursement hits were fairly predictable. Now came a host of changes at once. Medical utilization went up. Medical costs went up. CMS adjusted its risk adjustment formula. Star rating economics became more complex. Scrutiny also increased over how much diagnosis coding was used to boost payments to MA plans. Suddenly that math doesn’t work anymore.
An insurer no longer asks simply:
How many Medicare members can we acquire in this county?
It increasingly asks:
Can we make an acceptable return on the next Medicare member we acquire in this county?
Those are very different questions. And when the answer to the second question is “no,” the rational business decision may be to leave.
The utilization problem may be the biggest problem
Here’s another way to think about the Medicare Advantage market. Insurers essentially place a wager each January. CMS pays them a risk-adjusted amount to cover a beneficiary, and then the insurer is on the hook for that person’s medical costs. If costs are lower than expected, it can be a very attractive business. If costs are higher than expected, profits erode rapidly. That’s why seemingly minor changes in medical-cost trends matter. Here’s why.
Analysts at KFF dug into insurers’ financial data and found that Medicare Advantage gross margins averaged roughly $1,655 per enrollee in 2024, higher than in the individual market, group market or Medicaid managed-care market. Medicare Advantage medical loss ratios were approximately 90%, however, and gross margins had fallen from the previous year.
A 90% medical loss ratio means about 90 cents of every premium dollar goes to medical claims. That leaves little room for administrative expenses, marketing, broker commissions, supplemental benefits, and profit. Hence, when hospitalizations, outpatient visits, physician visits, or other costs exceed actuarial expectations by even a small amount, a seemingly profitable plan can suddenly become unprofitable. QUICKLY. That’s why you won’t see insurers abandoning Medicare Advantage. They’re dropping MA products that don’t meet their desired return metrics.
CMS is also changing how insurers get paid for risk
Another major pressure point is risk adjustment. MA payments don’t quite go up dollar-for-dollar with additional coding because Medicare Advantage payments aren’t the same for every beneficiary. Plans get paid more money for beneficiaries they expect to use more healthcare. That too has made documenting diagnoses financially valuable.
But that same practice has led policymakers to worry about how much coding is increasing MA payments. For example, MedPAC estimates that coding intensity will keep MA risk scores in 2026 roughly 4% higher than they would have been if the same beneficiaries were in traditional Medicare, even after CMS’s coding adjustment. That difference alone will drive approximately $22 billion of additional MA payments in 2026, MedPAC estimates.
CMS is already responding by tightening its payment methodology. CMS will simply exclude most diagnoses submitted through “unlinked” chart-review records (i.e., records that weren’t linked to a specific service date) from risk-score calculations for payment year 2027, for example. Put less politely: Some tools that insurers have used to increase their risk-adjusted payments are becoming less lucrative. This further elevates the importance of actually managing healthcare costs.
But here’s the fascinating part: Medicare Advantage payments aren’t actually being cut overall
This is where the popular narrative becomes misleading. One might assume insurers are shrinking Medicare Advantage because Washington is simply cutting their funding. The numbers don’t show that.
CMS finalized a 5.06% average increase in Medicare Advantage payments for 2026, before the additional effect of expected risk-score trends. For 2027, CMS finalized another 2.48% average increase, representing more than $13 billion in additional payments. When CMS’s expected 2.5% risk-score trend is included, the projected overall increase reaches roughly 4.98%.
So why are insurers still cutting plans? Because revenue growth and profitability are not the same thing. Medical costs can grow faster than reimbursement. A particular county can perform worse than the national average. A plan can attract a more expensive population than anticipated. Supplemental benefits can become too expensive. Provider contracts can deteriorate. Star-rating changes can affect bonus revenue.
An industry can therefore receive billions more from Washington while individual products remain economically unattractive. That distinction is essential to understanding what’s happening.
Insurers have discovered that not every Medicare Advantage member is a good member
This could be the most important strategic shift I see taking place in MA. Wall Street has long celebrated membership growth. Insurers are showing they’ll sacrifice members to grow margins.
UnitedHealthcare is a great example. They ended 2025 with about 8.4 million MA members. By mid-2026, they had just under 7.6 million. And they project finishing 20(asterisk)26 with up to 1.1 million fewer MA members than the year before. What’s important is what happened to margins during that same period. United’s remaining members have cost less to insure.
This has led to better margins. This isn’t a failed growth strategy. It’s thoughtful portfolio management. Dump unprofitable members. Cut costly benefits. Restructure provider networks if needed. Withdraw from underperforming counties. Channel enrollments into more favorable products and demographics. Maximum membership is no longer the goal. It’s maximum profitable membership.
Rural America may feel this first
All of this economics gets really tricky in lower density markets. Rural beneficiaries made up just 14% of individual MA-PD enrollment in 20thinkionknew, yet they accounted for 23% of people covered by plans that were terminated going into 20twentyone.
That imbalance shouldn’t shock you. Medicare Advantage plans need enough membership to establish efficient provider networks, negotiate pricing, spread administrative expenses, and manage medical risk. It’s hard to do that in small rural markets. In fact, the median county-level enrollment for plans that were cut was only 22 enrollees, KFF reports. Pause for a second and let that sink in.
An insurance company isn’t going to keep supporting an entire infrastructure for a product just because Medicare Advantage enrollment is growing nationally. At some point, someone in finance will ask: Why are we still selling this plan? And increasingly, insurers can answer that question: We shouldn’t be.
This doesn’t mean Medicare Advantage is disappearing
It’s an important distinction. Almost 35.5 million Americans were enrolled in Medicare Advantage as of early 2026, and enrollment was continuing to grow year-over-year — just far less rapidly than in the program’s hyper-growth days. And even after millions of plans were cut, the typical beneficiary still has vastly more choice than he used to.
In 2026, the average Medicare beneficiary can choose from dozens of Medicare Advantage plans. Availability still varies widely by geography, but … enough. The story isn’t: “Medicare Advantage is dying.” A better headline is: “Medicare Advantage is maturing.” And the behaviors we see in a mature market aren’t the same ones we’d see in a growth market. In a mature market, companies stop trying to sign up every customer. They segment their market. They pay more attention to unit economics. They divest poor-performing geographies. They cut back on customer-acquisition costs. They focus their capital. Healthcare is simply seeing the same discipline applied to Medicare Advantage.
The consumer could ultimately pay the price
UnitedHealthcare. Humana. CVS. The key question for beneficiaries isn’t whether Medicare Advantage plans are profitable for those companies. It’s what they do to remain profitable. Insurers can pull only so many levers. They can raise premiums. They can increase cost sharing. They can trim dental, vision, OTC and other supplemental benefits. They can restrict formularies. They can narrow provider networks. They can increase utilization management. Or they can just quit markets altogether.
We’re already seeing a number of those tactics in play. Which means the biggest story surrounding Medicare Advantage over the next few years might not be enrollment. It could be benefit erosion. Competition forced insurers to load up Medicare Advantage plans with benefits for more than a decade. Now we’re entering the reverse incentive.
The Medicare Advantage gold rush is over
There is an important irony here. Medicare Advantage remains an enormous and potentially profitable business. MedPAC projects Medicare payments to MA plans of roughly $615 billion in 2026, while estimating those payments will be about 14% higher than what Medicare would have spent if MA beneficiaries were enrolled in traditional fee-for-service Medicare.
There’s one more trend, however. While plans are being added, they’re also being dropped. That’s not an oxymoron. Those two trends explain exactly what’s going on. Medicare Advantage’s first decade was the era of scale. Now we’re entering an era of precision.
Precision in choosing counties. Provider networks. Benefits. Beneficiaries. Risk profiles. Margins. Insurers are not turning against Medicare Advantage. They’re just becoming exceedingly picky about which Medicare Advantage business they’ll write. But for beneficiaries, that distinction probably matters little. A beneficiary doesn’t see “portfolio optimization.” They see a letter informing them their plan won’t be available next year. They see their favorite physician suddenly go out of network. They see their OTC allowance drop from $75 to $25. They see a new copay that wasn’t there last year. And they see another October worrying about how to compare dozens of insurance plans. Those are the stories we’ll be reporting on as we delve into 2027.
Growth is likely still ahead for Medicare Advantage. Federal spending is likely still ahead. Insurer margins may even rebound. But the unique period in which Medicare Advantage plans could offer richer benefits while chasing membership growth and delivering juicy returns to investors seems to be coming to a close. And when those three goals conflict, we’ve already seen which one insurers will sacrifice. Growth.
