What if the Advance Rate Notice is just the beginning of change?

Chapter 1: Cost of Care

By Andrew Davis, principal, Deloitte Consulting LLP, Olga Karlinskaya, senior manager, Deloitte Consulting LLP, and Mike Selvage, senior manager, Deloitte Consulting LLP

This is the first of a multi-part series on actions a payer can take related to the recent Advance Rate Notice.

Our analysis shows that in 15 years, the US could save $500B annually for those covered under Medicare, with appropriate investments. While that is 15 years away, there are potentially billions of dollars of opportunity to manage the cost of care in 2026 and 2027, which gives payers a choice with the Advance Rate Notice: do more of the same and hope for a different result or understand and influence members and make progress towards the Future of Health.

It may have been hard to avoid the news about health care in the past three weeks; from the CEOs of some of the largest health insurance companies in Washington talking to Congress, to last week’s Advance Rate Notice from CMS that raised revenue a projected .09%. While there could be changes in the final notice, there are many considerations for health insurance companies, and one question as they look forward is likely to be a tough one:

After weak performance in 2024–2025, accelerating medical trend in 2026, and a modest rate update for 2027, is Medicare Advantage still a place to invest and grow?

Those considerations will likely be reliant on moving beyond traditional levers. Many plans will likely respond the way they have in the past: reduce supplemental benefits at the margin, intensify utilization management, and concentrate care management on the highest-cost members. These levers matter—and they will likely remain part of the toolkit, but they also tend to encourage a deferral of care. Deloitte studies show that 29% of women and 22% of men skip care due to the costs of those services (Link). This creates potential for longer-term chronic conditions. To increase success on bending the cost curve in future years, it is important to consider strategies and new levers that create durability, member value, and take cost out of the system, not just out of the benefits.

There is an alternative path that should be considered, but a health plan can’t do it alone. They can orchestrate across other partners. Our recent analysis indicates that by 2040, Medicare beneficiaries’ total medical and pharmacy costs could be $500 billion lower annually if certain measures are implemented. While 2040 is far out, the practical point is immediate: the underlying investments—prevention, earlier detection, care coordination, and better sensing of emerging risk—can produce near term health and financial impact without reducing coverage to the minimum.

In the world of medical costs…prevention can be the mightiest lever
While most programs focus on the most chronic members, using dedicated outreach to help them mobilize around their care, our data suggests that there are meaningful savings which can come from scaled prevention and early intervention—intervening before member steps into higher cost states.

Let’s take diabetes as an example. In 2024, data encompassing over 6 million Medicare Advantage lives from the Komodo Healthcare Map^TM, Deloitte found that approximately 12% of the population had a diagnosis code that related to pre-diabetes. The average medical costs for a pre-diabetic member annually was roughly $16,000. For a diabetic patient, the average costs was about twice that, or almost $30,000.

The opportunity is not theoretical: if plans and partners can engage members to avoid or delay progression—using a practical combination of time-bound medication support and lifestyle interventions—the incremental investment can be materially lower than the avoidable cost increase. Changing the trajectory of health for those 12% who are pre-diabetic at scale can have a positive impact on those individuals and bend the cost of care.

Now let’s do the math, if you have 100,000 members as a health insurer, this means you have around 12,000 pre-diabetic members. If you could get just 600 (or 5%) to change their trajectory, that savings for the next year could be over $8M. That’s almost $7 per member per month for every enrolled member. This investment into a member today could be the difference in their health trajectory and contribute to a business opportunity in 2027.

This is one condition. Similar trajectory change opportunities exist across cardiovascular, renal, and neurological pathways—if plans design programs that are scalable, measurable, and behaviorally realistic for members. It involves both insurers thinking about how to look at care differently, and consumers/members/patients wanting to influence the trajectory of their care. This could be just the start, and actions such as this begin our path to the Future of Health we projected in our recent report.

Some of this is just getting better reach
Almost every health plan we’ve talked with has a program that focuses on the emergency room and how to keep those who use it often to use it less. This can be effective, but usually this is done with an employee from the health plan intervening.

Our analysis of the 6 million lives shows that using NYU emergency room classifications (Faculty & Research | NYU Wagner), 65% to 75% of emergency room visits on average (variations by payer and geography) are classified as avoidable. These are visits that could be done in urgent care, with a primary care doctor, or not requiring care at all. To help fix this problem, as a payer, a belief that you can influence patients and understand what the needs are should be a focus.

For example, a patient may seek care in an emergency room for a headache. This represents 1.5% of the emergency room visits based on the Komodo Medicare Advantage data of over 6 million lives. While there are instances when a headache might be an emergency, our analysis of the data suggest that 87% of the time, the emergency room may not needed to care for this. 78% of the time, no care may be required at all. Some interventions are emergencies and require that level of care. With appropriate intervention—member education, navigation support, rapid access alternatives, and primary care/virtual pathways—many of the non-emergent visits can be prevented without compromising quality and safety. This intervention can also save members costs sharing, knowing that emergency rooms typically have higher cost sharing than other sites of care.

Payers should continue to refine the approach
Even when making choices that help them move to the Future of Health, there are standards that should continue to be evaluated and improved to help manage cost of care most effectively.

Robust cost of care management involves four critical pieces; what we at Deloitte have called “horizons.”

• Horizon 1: Removing medical and pharmacy waste. Most of this is doing things a payer does already today, just making sure payments made match the services and policies provided. There are a lot of enhancements that payers can continue to make in this space.
• Horizon 2: Optimal care in the right place with the right support. Like the emergency room example, this is about optimizing care and guidance for those that need care. Some of this payers are doing today, but there are so many patients that can be influenced to drive savings. There is also an opportunity to address care gaps effectively through programs, AI, and clinical interventions.
• Horizon 3: Shaping the “Moveable Middle.” This is about changing trajectory and early intervention for those who are not the sickest, but on a higher cost trajectory, like the pre-diabetic example. There is opportunity here that is generally untapped. This is not the focus on the most sick, but a focus on those who a payer could engage and where timely intervention can avert progression.
• Horizon 4: Care Sensing. This is about bringing together massive sets of data to find pockets of patients before they need help. This probably would’ve felt far fetched even a few years ago, but with AI being able to power through multiple types of data, this is now in reach. Apply advanced analytics/AI to detect emerging risk sooner—so interventions can happen before high-cost utilization begins.

Investing in more than one horizon simultaneously can increase business opportunity—not as disconnected pilots, but as a coherent cost-of-care strategy tied to measurable outcomes.

The Future of Health can be this moment: Make this the moment
The cost of health care is going up, and health insurers may not think the Advance Rate Notice will be enough, so they are going to look for solutions. Insurers should consider prioritizing solutions that reduce cost while improving the system’s direction by scaling prevention, improving guidance to the right care, and building better sensing of emerging risk. It’s possible, the science exists, and our actuaries here say that it could pay off. Use this moment to prove that it’s possible.

Tune in for Chapter 2 in our series where we look at more impacts of the Advance Rate Notice.

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Data Sources: Claims analysis performed in this blog was done leveraging the Komodo Health Care Map^TM 2026, which had approximately 6 million Medicare Advantage lives.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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