The Trump administration finalized significantly higher Medicare Advantage rates for 2027 than it had proposed after a full-court lobbying press from the insurance industry — and despite dogged concerns about overpayments in the privatized Medicare program.
On Monday, the CMS locked in an average rate increase of 2.48% for next year, compared to the 0.09% increase that regulators proposed earlier this year.
As a result, the government will send more than $13 billion in additional payments to MA plans in 2027, versus the $700 million raise that regulators initially planned.
The 2.48% average rate hike is higher than analysts had expected, and will be even higher — 4.98% — after insurers account for the health needs of their members through MA’s risk adjustment process. Risk adjustment modifies reimbursement to a plan higher or lower depending on the demographics and conditions of its enrollees.
The CMS had proposed changes to the risk adjustment model that would have required insurers to use more recent data on member diagnoses and spending. Regulators said it would make payments more accurate.
But those changes were stripped from the final rule, the key driver of the more generous final rate update, CMS officials said in a call with press on Monday afternoon.
They argued that the decision to nix the changes is not a handout to the industry.
“We’re not throwing the risk adjustment model out. I think that would be a gross mischaracterization of what we’ve done,” said Chris Klomp, the director of Medicare, arguing that insurers didn’t get everything they wanted since plans lobbied for a higher rate than 2.48%.
“I’m sure there will be folks on both sides of the equation who may have concerns about where we’ve landed,” Klomp said.
Klomp said that the CMS is laser focused on ensuring payment integrity in MA, and left the door open for future risk adjustment model changes.
Still, the final rule is a victory for MA insurers like UnitedHealthcare and Humana looking to recover profits after years of unexpectedly high medical spending. Stocks in major MA providers jumped in aftermarket trading after the rule was released.
The relief delivered by the final rule for the industry is “hard to overstate,” Jefferies analyst David Windley wrote in a note Monday.
Trump administration jettisons risk model changes
Originally, the MA industry had expected a 3% to 5% raise for 2027, after the Trump administration’s unexpectedly generous rate update for 2026 and given that insurers have continued to struggle with elevated medical spending.
But the advance notice released in January scuttled those hopes, sending stocks in major MA payers cratering and sparking a major lobbying push from the industry.
Over the past few months, insurers and MA groups have funded research, launched ads, rounded up signatures, met with government officials and submitted a barrage of unhappy comments to the CMS to try and get higher rates.
Those efforts were, by and large, successful. Analysts had expected final rates to be about 1 to 2 percentage points higher than the proposed rule.
But the final rate was almost 2.4 percentage points higher, an unexpectedly high bump — especially after CMS officials spent the last two months defending the proposed rates.
Since January, CMS Administrator Dr. Mehmet Oz and his deputies have done rounds of public appearances arguing they’re not unsympathetic to the plight of MA insurers saddled with higher spending, and that the Trump administration is fully supportive of MA.
But tweaks need to be made to address overpayments and restore trust in the program, they said.
Still, the most meaningful tweaks didn’t make it into the final rule.
Regulators did finalize a proposal to prevent insurers from getting paid for member diagnoses that aren’t tied to an actual patient encounter, with an added exception. Insurers can still include chart reviews in members’ risk scores for beneficiaries who switch from another MA plan, after payers argued the reviews were invaluable for learning about the conditions of new members.
But the proposed risk model recalibration — the core of the MA industry’s gripe with the advance notice — is no longer going into effect.
The CMS had proposed to update the risk model using more recent data from traditional Medicare to reflect more current costs associated with diseases, conditions and demographic characteristics. But insurers successfully argued they need more time to digest Biden-era changes to the risk model, called V28.
The omission of the risk model changes — along with another regulation finalized late last week set to send almost $19 billion more to MA plans over the next decade — shows the Trump administration is not unwilling to play ball with the industry, despite the GOP’s increasing animus against for-profit health insurers.
Regulators — or the White House — were likely swayed by concerns that the flat rate update would disrupt Medicare seniors right before November’s midterm elections, TD Cowen analysts wrote in a note on Monday.
“We see the fact CMS did not implement the risk model recalibration as an indication the MA industry has the ability to affect CMS decision-making,” they said.
“Today’s Final Rate Announcement reflects an improvement from the initial proposal. This is a direct response to the thousands of beneficiaries and hundreds of organizations who spoke out to urge that Medicare Advantage be fully funded,” influential MA association the Better Medicare Alliance, which was behind much of the industry’s lobbying efforts, said in a statement Monday.
Insurers had warned that if final rates weren’t adequate, they would have to reduce benefits and exit plans in underperforming markets for another year, further constraining options for the 35 million seniors on MA. Most major insurers trimmed their MA membership going into 2026, sacrificing growth for the potential of higher profits.
The threat of another year of coverage disruptions for seniors held weight with the CMS, Klomp said on the press call.
“We very much care about not having plan exits that are disruptive to a beneficiary who needs to change plans from year to year. So yes, we have paid attention and have considered prior plan exits,” the Medicare director said.
The final rate should help MA insurers looking to recover margins, analysts said, though the success of that goal depends on whether medical utilization stays elevated, a company’s quality ratings and other factors.
The final 2.48% update still doesn’t keep pace with actual cost pressures facing insurers or the physicians they contract with, industry groups, including nonprofit insurer coalition the Alliance of Community Health Plans and provider association America’s Physician Groups, said.
Plans could still cut benefits in 2027, and how the final rates impact margin recovery efforts will likely be a major topic of discussion during insurers’ first-quarter earnings calls, which start later this month.
