CMS authors plot twist in Medicare Advantage comeback story

Modern Healthcare – Wednesday, January 28, 2026
By Nona Tepper

The hill Medicare Advantage insurers have been climbing to regain peak profitability just turned into a mountain.

Leading carriers such as UnitedHealth Group subsidiary UnitedHealthcare and Humana got a shock Monday when the Centers for Medicare and Medicaid Services proposed virtually flat Medicare Advantage payments next year — not the bigger raise Wall Street expected — along with limits on tactics that have boosted revenue at taxpayer expense.

CMS’ announcement tanked health insurance company shares and threatens the comeback story health insurance companies have been spinning after a period of subpar financial results.

“It’s clearly not good news, unless you were smart enough to short the stocks,” said Ari Gottlieb, an independent health insurance consultant.

Over the past three years, Medicare Advantage companies have confronted high costs and utilization, a challenging coding update, lower quality bonus payments, and a marketing crackdown.

In 2024, Medicare Advantage profits dipped to the lowest point in a decade, according to an analysis by the investment bank TD Cowen. Smaller insurers such as Blue Cross and Blue Shield of Vermont that lack capital to tough out the difficult cycle, opted to quit the program.

But after last year, most large insurers thought they were through the worst of it.

UnitedHealthcare and some rivals viewed 2026 as a reset year and cut benefits, exited unprofitable markets, narrowed networks and scaled back marketing to revive profits next year. Humana and a few others bucked that trend, expecting to gain market share while others retreated and be in a stronger position when conditions improve.

“​​Before yesterday, investors including me were really feeling very optimistic about owning Medicare Advantage names. The Medicare Advantage trade was on,” said Michael Ha, senior research analyst at Baird, a financial services firm.

Publicly traded Medicare Advantage insurers’ market capitalization plummeted a combined nearly $90 billion on Tuesday, also influenced by UnitedHealth Group’s fourth-quarter earnings report. The sell-off even hit insurers such as Cigna that don’t sell Medicare Advantage plans.

“It’s the perception. People are saying, ‘Medicare Advantage is in trouble,’ so everybody thinks they have to sell every insurer stock,” said Brad Ellis, senior director at Fitch Ratings.

Wall Street’s outlook on Medicare Advantage has drastically shifted since investors sent shares soaring the day after President Donald Trump won his second term in 2024. Insurers anticipated that a Republican administration would be friendlier to Medicare Advantage than Democratic President Joe Biden.

CMS reinforced that perception last year when it reversed course after consecutive years of payment cuts under Biden and granted Medicare Advantage insurers a 5.06% payment increase for 2026.

For the most part, however, the Trump administration has sustained pressure on Medicare Advantage carriers, and the proposed 0.09% pay boost next year is the latest example.

The meager payment hike is only part of the bad news for Medicare Advantage insurers. CMS also proposes to rein in a common method to maximize revenue via the program’s risk-adjustment system.

CMS determines how much Medicare Advantage insurers get paid partly based on member health status. This gives companies a financial incentive to attribute as many diagnoses as possible to enrollees.

UnitedHealthcare, Humana, CVS Health subsidiary Aetna and others often send representatives to policyholders’ homes to conduct health risk assessments or retroactively comb through medical charts for diagnoses to name.

The Health and Human Services Department Office of Inspector General found more that than 50% of Medicare Advantage contracts — or bundles of plans — include risk codes unlinked to patient treatment.

To counter this, CMS proposed excluding from risk scores any diagnoses recorded during chart reviews that aren’t connected to actual medical encounters. The agency also aims to end payment for audio-only visits. Combined, this would cost the industry $22.3 billion, according to CMS.

UnitedHealth Group and the health insurance trade association AHIP warned that more benefit reductions and geographic cutbacks will result if CMS implements this plan.

Yet risk coding changes could present an upside for smaller insurance companies that lack the resources to set up sophisticated systems that boost risk scores.

Accordingly, two trade groups for nonprofit health insurers, the Alliance of Community Health Plans and the Association for Community Affiliated Plans, applauded the proposal.

“We strongly support CMS’ efforts to curb incentives that reward coding intensity rather than care delivery,” Alliance of Community Health Plans President and CEO Ceci Connolly said in a news release.

CMS is supposed to finalize Medicare Advantage and Medicare Part D prescription drug plan rates and policies for 2027 by early April. The agency frequently awards higher pay hikes than it initially puts forward.

“This is just a proposal. There’s still a bunch of different ways this could go,” said Jason Cassorla, senior analyst at Guggenheim Securities.

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