Slight Medicare Advantage payment increase sparks debate over risk adjustment

A proposed Medicare Advantage payment update that would raise rates only slightly is rattling insurers and investors and raising new questions about how CMS should handle risk adjustment.

CMS released its proposed 2027 Medicare Advantage and Part D Advance Notice on January 26, projecting an average payment increase of just 0.09%, or about $700 million across the Medicare Advantage (MA) program. The proposal fell short on Wall Street’s expectations and quickly influenced insurer stock prices, flagging how closely the industry tracks even small changes in federal payment policy, according to a report by the Wall Street Journal.

Shares of UnitedHealth Group have fallen to about 20% since after-hours trading Monday, Humana’s stock also dropped about 20% and CVS Health fell more than 14% as of this afternoon. Analysts had expected CMS to propose a payment increase closer to 4% to 6% for 2027, following a 5.06% increase for 2026, The Journal reported.

MA now covers more than half of all Medicare beneficiaries and because of this, CMS’ annual rate updates play a major role in shaping insurers’ financial outlooks, benefit offerings and business strategies.

CMS officials said the proposal is focused on improving payment accuracy and long-term stability rather than increasing plan payments.

“We do not want risk adjustment to be a source of competitive advantage for health plans,” Chris Klomp, CMS deputy administrator and director of Medicare, told The Journal.

One reason the proposed rate increase came in lower than expected is CMS actuaries’ estimate of spending growth in traditional Medicare, which helps determine payment benchmarks for MA. For 2027, CMS shared in a January 26 news release that it used an effective growth rate of 4.97%, below what many analysts had predicted.

CMS noted that these estimates often change before rates are finalized in April as more data become available. When factoring in ongoing trends in billing and coding, CMS expects overall MA payments to rise by about 2.54% in 2027 once estimated risk score growth is included.

The proposal also includes a change that could impact some insurers. CMS plans to stop counting diagnoses from supposed unlinked chart reviews when calculating risk scores starting next year. Under current practice, insurers can review medical charts to identify diagnoses that raise payments even if those diagnoses are not tied to a specific medical visit.

CMS shared in the release it estimates removing payment for unlinked chart review diagnoses would reduce MA payments by about 1.53%. Diagnoses found through chart reviews would still count if they are connected to an actual medical service, such as a doctor visit.

Federal oversight agencies, including the HHS Office of Inspector General (OIG), have warned for years about unlinked chart reviews and other coding practices. According to The Journal, the OIG has said these practices can lead to payments that may not be justified and benefit some insurers more than others. In a 2021 report, the OIG said UnitedHealth Group received sizable payments linked to these practices, though the company said its chart review programs follow Medicare rules.

Following yesterday’s update, organizations in the industry responded quickly, warning the proposal could affect coverage and costs for beneficiaries.

AHIP, which represents large national insurers, said flat funding at a time of rising medical costs could force tough choices.

“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 2026,” Chris Bond, an AHIP spokesperson, said in a released statement.

The Alliance of Community Health Plans, which represents nonprofit and regional insurers, took a more mixed view. While ACHP criticized the proposed rates as unrealistic due to rising costs, it supported CMS’ effort to update the risk adjustment system and reduce incentives tied to coding intensity.

“CMS’ proposal to exclude unlinked chart reviews from risk scores is a welcome step,” Ceci Connolly, ACHP President and CEO, said in a shared statement. “We look forward to reviewing the details to ensure less-resourced and regional plans are not unintentionally disadvantaged.”

Connolly added that that fairer risk adjustment could help support a more stable MA program if carried out carefully.

CMS will accept public comments on the proposed 2027 Medicare Advantage and Part D policies through February 25. The agency is expected to release final payment rates by early April, leaving insurers and investors watching closely.