Recently, upcoming Medicare Advantage (MA) rates were released and are set to be finalized in April, so why is there so much discussion going on?

Today, Medicare Advantage (MA) is the dominant way in which Medicare is administered. In 2025, approximately 54% of Medicare enrollees, or 34 million Americans, were enrolled in an MA plan. Unlike traditional Medicare, where the government acts as the insurer, MA is administered by private health plans, known as Managed Care Organizations (MCOs).¹ These MCOs receive capitated payments from the federal government and assume responsibility for providing comprehensive care to their enrollees.²

Many beneficiaries opt into MA plans, because MA plans often offer additional benefits, such as dental, vision, and hearing coverage, that are not usually included in traditional Medicare. Nevertheless, MA plans can come with tradeoffs. Unlike traditional Medicare, MA plans typically operate within defined provider networks and often require more prior authorization for specific services.³ Financing Medicare Advantage has also proved to be a concern for the U.S. Centers for Medicare & Medicaid Services (CMS). According to a 2024 MedPAC report, MA beneficiaries cost the federal government 22% more than enrollees of traditional Medicare.⁴

Payment Rates

Every year, CMS updates the payment rates it provides to MA plans. These rates are reevaluated based on two criteria. First, CMS calculates average per capita spending by traditional Medicare enrollees in each county, which it utilizes to establish county-specific benchmarks that cap reimbursement rates. Second, CMS applies its risk adjustment model, the Hierarchical Condition Categories (HCC) model, to account for differences in health and demographic status among its beneficiaries. Together, these criteria inform the publication of the Advance Notice, a document that outlines CMS’s projected rate changes for MA plans. Following a public comment period, CMS then finalizes payment rates in the annual Rate Announcement.⁵

On January 26, CMS published the CY 2027 Advance Notice, announcing a 0.09%, or 700-million-dollar, year-over-year increase in MA payments.⁶ This figure fell considerably short of industry estimates, which predicted a rate increase of approximately 4.97% in 2027.⁷ Because MA plans operate on relatively tight margins and depend heavily on risk scoring, even modest changes in payment rates can substantially affect profitability. Likewise, following the announcement, shares of CVS Health, UnitedHealth Group, and Humana fell by 13%, 19%, and 20%, respectively.⁸ Together, these firms make up 74% of the MA market, with UnitedHealth Group alone providing MA to 41% of U.S. counties.⁹ If finalized in the spring, these changes would mark the lowest rate hike since 2015, when MA payment rates declined by 4.07%.¹⁰

Citing these changes, CMS deputy administrator and director of Medicare Chris Klomp reiterated CMS’ goal to ensure payment accuracy and eliminate administrative complexity.¹¹ Central to this effort is addressing concerns about improper payments among Medicare Advantage Organizations (MAOs). Over the past decade, MAOs have faced scrutiny for upcoding, a practice where providers bill for additional or more complex services than the patient actually received.¹² To do so, providers have relied on unlinked Chart Review Records (CRRs), claims filed by an MA payer based on a chart review that lacks documented proof of treatment. Unlinked CRRs are often utilized by MA payers to inflate a plan’s risk adjustment score, so that they can receive larger reimbursement rates.¹³ Likewise, a 2019 study concluded that CMS overpaid MAOs by $2.7B in 2017 as a result of unlinked CRRs.¹⁴ To address improper payments, CMS has not only proposed lower rate hikes but has also proposed eliminating the use of unlinked CRRs in risk adjustment calculations.¹⁵ Together, these policies aim to eliminate excess spending, so that more value is delivered to the patient.

We do not want risk adjustment to be a source of competitive advantage for health plans

Chris Klomp
CMS Deputy Administrator and Director

While these policies primarily aim to address improper payments, they could result in substantial coverage gaps for MA beneficiaries. Chris Bond, a spokesman for the insurance advocacy group AHIP, warned that these payment changes “could result in benefit cuts and higher costs for 35 million seniors and people with disabilities.”¹⁷ This would not be the first time MA plans have scaled back benefits to cut down on costs. In 2025, some MA plans reduced meal, transportation, and fitness benefits.¹⁸ Nevertheless, estimates by the Wall Street Journal project that further negotiations may result in a payment rate hike as high as 2.45%.¹⁹

As MA enrollment rises, CMS continues to face the growing necessity to curb costs through cutting payment rates. Payers may absorb these costs through addressing potential sources of waste related to administrative complexity and improper payment schemes. Nevertheless, they may also push these costs onto beneficiaries through reducing benefits and raising out-of-pocket expenses. Should this happen, MA may become less attractive for beneficiaries in the future, signaling a potential decline for MA enrollment.

Industry Response

Major insurers have outlined their strategic responses to the proposed rate changes. UnitedHealth projects a loss of between 1.3 million and 1.4 million Medicare Advantage members in 2026 as part of a pricing strategy focused on margin recovery. CEO Tim Noel stated that the Advance Notice does not align with current medical utilization and cost trends. Humana CEO Jim Rechtin noted the challenge of balancing fiscal constraints with beneficiary needs, indicating the company would potentially adjust its operations if funding levels do not support its benefit structure. Both companies have indicated they will continue to engage with CMS during the public comment period before rates are finalized in April.

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