Insurers get a 2.48% MA pay bump after close call with a flat rate

Plans participating in Medicare Advantage will get a larger payment increase than originally planned, according to the finalized 2027 Rate Announcement.

Yesterday, CMS released the rate announcement for Medicare Advantage (MA) capitation rates and Parts C and D payment policies for the 2027 calendar year. The latest rate announcement finalized a 2.48% increase in overall payments to MA plans, up significantly from just 0.9% proposed earlier this year.

Insurers have been fighting for a higher payment boost since January, when CMS indicated a relatively flat rate compared to 2026 MA payments. However, the modest bump finalized in the 2027 rate announcement is still well below the 4-6% increase many insurers expected in light of growth in Medicare medical spending.

The lower 2027 MA rate also comes at a time when participation in the MA program is waning. Market volatility, coupled with significantly slower enrollment growth, has contributed to some insurers terminating their MA plans.

Chris Klomp, Director of Medicare and CMS' Deputy Administrator, defended the final rate announcement, telling reporters on a Monday that MA "remains central to the future of Medicare, but it must be done the right way."

The net average year-over-year increase, though, will bring in over $13 billion more for MA plans than this year, which saw a generous bump in overall payments.

The updated 2027 MA rate stemmed from a substantial increase in the effective growth rate. CMS proposed a 4.97% growth rate in the advance notice but settled on 5.33% after incorporating newer cost data from Medicare.

CMS also did not fully finalize a new risk adjustment model for next year. The agency decided to give insurers more time to adjust to changes from a 2024 risk adjustment update that implemented the CMS-Hierarchical Condition Category (HCC) V28 model.

The MA program fully transitioned to the V28 model in 2026, which introduced stricter coding rules that have reduced risk scores -- and, therefore, payments -- for many beneficiaries.

The 2027 Advance Notice sought another shift in MA risk adjustment, using more current data and further refining certain condition categories. The proposed update would also exclude diagnoses from audio-only services and those from unlinked chart reviews.

CMS previously said the risk adjustment proposal would improve model accuracy, which would have shifted beneficiary and plan risk scores again.

However, the 2027 Rate Announcement largely sidestepped these risk adjustment changes but will exclude diagnoses from unlinked chart review records, starting next year. That means diagnoses not associated with a service will not be considered for risk adjustment unless a beneficiary switches from one MA organization to another.

The Rate Announcement also finalized separately accounting for MA prescription drug plan and standalone prescription drug plan costs to improve the accuracy of Part D payments.

Klomp said these changes will transition the healthcare system from "code to cash to one that's care to cure." The newest policy shifts will align incentives, so plans focus on outcomes and competition, he continued.

"The business model can no longer be about data mining. It must be about delivery value," he explained.

MA plans can still expect overall risk scores to increase. CMS estimates an average 2.5% boost in 2027 due to the underlying coding trend.

This growth in risk scores brings MA insurers closer to the rate they wanted. However, leading payer industry groups were not enthusiastic about the final rule.

"More than 35 million seniors and Americans living with disabilities choose Medicare Advantage because it provides them with better care at lower costs than fee-for-service. As health plans incorporate the policies released in recent days, they will continue to focus on keeping coverage and care as affordable as possible during this time of sharply rising medical costs," Chris Bond, a spokesperson for America's Health Insurance Plans, said in a statement on Monday.

Better Medicare Alliance, an MA advocacy group, said the Rate Announcement "reflects an improvement from the initial proposal" and it plans to continue working with policymakers "to build on this progress -- to ensure Medicare Advantage continues to serve every beneficiary who counts on it."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.