CMS Boosts 2027 Medicare Advantage Rates Amid Industry Pressure

The Centers for Medicare & Medicaid Services (CMS) on Monday finalized a stronger-than-expected payment update for Medicare Advantage (MA) plans in 2027, backing off from an earlier proposal from the agency that signaled flat funding, which triggered industry concern over benefit cuts and market exits.

CMS said the final rate announcement will result in a 2.48% increase, or roughly $13 billion, in payments to MA plans, rising to about 4.98% when accounting for risk score trends, according to the agency. The shift follows warnings from MA stakeholders that lower rates could reduce plan offerings and benefits ahead of the 2026 election cycle, as reported by Inside Health Policy.

The update carries particular weight in Arizona, where nearly 787,000 beneficiaries are enrolled in an MA plan. That reflects modest growth from mid-2025 levels and a market holding at roughly 51% penetration, suggesting gains may be slowing in a state long dominated by national carriers. UnitedHealthcare leads enrollment in most Arizona counties, followed by Humana. Read the January 2026 MA enrollment by county in The Hertel Report.

CMS’ final policies reflect a recalibration of risk adjustment. The agency scaled back the impact of proposed changes, with final policies reducing payments by about 1.12%, compared to a 3.32% reduction in the advance notice, and incorporated more recent data into the rate calculation. At the same time, the agency maintained its policy to exclude diagnoses identified solely through chart reviews unless tied to a documented patient encounter, a move aimed at improving payment accuracy and limiting unsupported coding practices.

Director of Medicare and Deputy Administrator of CMS Chris Klomp, said during a press call with reporters that the agency is focused on long-term program sustainability and cost discipline, noting that payment growth cannot continue to outpace broader economic trends.

According to a January 2026 report by MedPAC, the disparity between fee-for-service Traditional Medicare payments and Medicare Advantage remains a problem.

Klomp also said the agency is concerned about the risk of insurers exiting markets, disruptions to providers, and potential benefit reductions if reimbursement pressure became too severe. In a separate interview reported by The Wall Street Journal, he said the agency must balance protecting taxpayers with maintaining stable plan participation.

Chris Klomp,

We have to be wise stewards of the tax dollar. But we need to make sure that plans aren’t pulling out of markets, that they’re not cutting benefits that beneficiaries are relying on.

According to KFF, about 2.6 million people covered by a MA-PD plan in 2025 had that coverage terminated  as insurers decided to discontinue or reduce the service areas where certain plans were offered. Plan terminations affected 13% of all enrollees in individual MA-PDs in 2025, a substantially larger share than in previous years

CMS also delayed further changes to the V28 risk adjustment model, allowing more time for the market to absorb prior updates, while continuing to address coding practices that distort payments. The new model significantly decreased the number of diagnosis codes that map to an HCC and increased the number of hierarchical condition categories CMS uses to increase payments. CMS anticipated that the transition to the V28 model would save over $7.6 billion in payments in 2024, according to the Office of Inspector General.

The same month, MedPAC gave Congress a snapshot of the effectiveness of the V28 model in curbing MA payments vs funding for FFS Traditional Medicare beneficiaries.

Beyond payment policy, CMS narrowed its Star Ratings program, removing a set of measures and refocusing on clinical outcomes and meaningful quality indicators, according to agency officials. Read more about those changes in a separate post on The Hertel Report.

Markets responded quickly. Shares of major insurers rose following the announcement, including UnitedHealth, Elevance Health, Humana, and CVS Health, as investors interpreted the update as a more supportive stance toward Medicare Advantage, according to The Wall Street Journal.

Analysts echoed that view. “This elevates the case for some margin growth and lessens the growing perception that CMS’ policy stance is worsening,” Leerink analyst Whit Mayo said, according to Reuters.

Provider groups, however, continued to raise concerns. The American Medical Group Association said the final risk adjustment policies could under-recognize clinically valid diagnoses and add financial pressure, according to Modern Healthcare.

Taken together, the final rule signals a more measured approach from CMS, one that reins in earlier policy pressure while preserving its longer-term push for more accurate payments, tighter coding oversight, and program sustainability.