CMS proposes modest Medicare Advantage pay increase

Modern Healthcare – Monday, January 26, 2026
By Bridget Early

Medicare Advantage insurers are in line for a meager boost to payments next year under a proposed rule the Centers for Medicare and Medicaid Services issued Monday.

The draft regulation calls for a 0.09% payment increase, which is significantly less than Wall Street anticipated. TD Cowen, for example, expected a 5%-6% raise for 2027, according to a research note the investment bank published Monday. CMS has exerted tighter control over Medicare Advantage spending under President Joe Biden and President Donald Trump.

CMS also proposed excluding diagnoses that appear in chart reviews but are not supported by corresponding medical encounters from how it calculates risk scores.

“By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers from unnecessary spending that is not oriented towards addressing real health needs,” CMS Administrator Dr. Mehmet Oz said in a news release.

CMS makes risk-adjusted payments to Medicare Advantage carriers using a complex formula that includes factors such as patient acuity. Insurers receive more money for patients who are sicker or have complex health needs.

But the Health and Human Services Department Office of Inspector General and others have observed a rise in diagnoses that aren’t necessarily supported by the care patients receive. Medicare Advantage plans received about $7.5 billion in 2023 for diagnoses that appeared only in risk assessments and related chart reviews, according to the OIG.

Under the proposed rule, CMS would retain the the “V28″ risk-adjustment model that debuted in 2024, which has provoked backlash from insurers, while making updates to it.

CMS aims to use diagnosis and expenditure data from 2023 and 2024, respectively, rather than records from 2018 and 2019. The agency also would exclude diagnoses from audio-only encounters from risk scores.

The Medicare Advantage Star Ratings quality assessment program would be modified under the draft regulation. The agency proposed a list of measures for the Categorical Adjustment Index, which adjusts payments based on socioeconomic status and disability, and updated guidance on when natural disasters qualify insurers for special dispensation. The proposed rule builds on a plan to overhaul the Star Ratings program that CMS detailed in November.

CMS also proposed to continue a multiyear effort to align Medicare Advantage risk adjustment with the risk score model used for the Program of All Inclusive Care for the Elderly, or PACE.

“Health plans welcome reforms to strengthen Medicare Advantage. However, flat program funding at a time of sharply rising medical costs and high utilization of care will impact seniors’ coverage,” a spokesperson for the health insurance trade group AHIP said in a news release. “If finalized, this proposal could result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October.”

CMS will accept comments through Feb. 25 and is slated to publish a final rule by April 6.

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