The Centers for Medicare & Medicaid Services (CMS) on Monday outlined proposed methodological and payment policy updates for Medicare Advantage that point to modest payment growth in 2027 while emphasizing program sustainability, accuracy, and administrative simplicity.
Notable U.S. health insurers are under pressure after the update, including:
CMS released its Calendar Year 2027 Advance Notice of Methodological Changes for Medicare Advantage capitation rates and Part C and Part D payment policies, a required annual process used to update payment rates and refine technical assumptions.
If finalized, the proposals would result in a net average year-over-year payment increase of mere 0.09%, translating to more than $700 million in additional payments to Medicare Advantage plans.
Citing analysts, the Wall Street Journal noted that it was estimated that the Medicare agency would propose a 2027 rate increase of roughly between 4% and 6%.
The WSJ report on Monday highlighted that the proposed rates came in below Wall Street expectations largely because federal actuaries used a lower spending growth assumption tied to traditional Medicare costs.
Analysts had expected this growth rate, which directly influences Medicare Advantage payments, to be higher than the 4.97% used in the proposal.
Historically, as additional data becomes available, actuaries often revise this growth estimate before final Medicare Advantage payment policies are set in April.
When estimated risk score trends tied to coding practices and population changes are included, the average expected payment change rises to 2.54%.
The agency said the Effective Growth Rate, a key component in setting benchmarks for Medicare Advantage payments, reflects projected growth in Original Medicare per capita costs as estimated by the Office of the Actuary.
"These proposed payment policies are about making sure Medicare Advantage works better for the people it serves," said CMS Administrator Mehmet Oz on Monday. "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."
As part of its broader effort to strengthen the program, CMS proposed updates to the Part C risk adjustment model. The agency said its approach is guided by three principles: reducing administrative burden through simplicity, enabling fair competition among plans, and ensuring payments accurately reflect beneficiary health risk.
The proposed model would continue using version 28 of the clinical classification system but recalibrate it with more recent Original Medicare data, updating diagnoses and expenditure years to better reflect current costs.
CMS also proposed excluding diagnoses from audio-only encounters and from unlinked chart review records starting in 2027, though plans would still be allowed to submit those records.
For Program of All-Inclusive Care for the Elderly organizations, CMS reiterated its plan to transition risk adjustment fully to the encounter data system. For 2027, the agency proposed blending risk scores evenly between the 2017 CMS-HCC model and the proposed 2027 model as part of a phased transition.
CMS said policies affecting Puerto Rico would largely continue existing approaches to support stability in a market where Medicare Advantage enrollment is significantly higher than in other jurisdictions.
On the Part D side, CMS proposed risk adjustment updates reflecting Inflation Reduction Act changes and more recent data, while also refining predictive accuracy for prescription drug plans.
The Advance Notice also detailed proposed updates and feedback requests related to Part C and Part D Star Ratings, with substantive changes subject to future rulemaking.
Market Reaction
Shares of major insurers fell sharply in premarket trading on Tuesday. UnitedHealth Group was down 13.13% at $305.48. Alignment Healthcare fell 15.20% to $20.19. Centene dropped 7.28% to $42.91. CVS Health slid 11.41% to $74.30. Elevance Health fell 7.14% to $350.00. Humana declined 15.03% to $224.00, while Molina Healthcare was down 6.04% at $188.91, according to Benzinga Pro data.
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