The Centers for Medicare & Medicaid Services (CMS) finalized an increase of the average benchmark payments to Medicare Advantage (MA) plans by 5.06%, or $25 billion, on Monday.
It is nearly a three-percentage-point increase over the advance notice proposed in the waning days of the Biden administration and will be seen as favorable to payers. The CMS said this is due to the effective growth rate increase from 5.93% to 9.04% in the rate announcement.
“This change is primarily due to the inclusion of additional data on fee-for-service (FFS) expenditures, including payment data through the fourth quarter of 2024, which was not included on account of the early Advance Notice publication,” the agency said in a news release.
Rebasing and repricing ultimately brought the payments to plans down by approximately a quarter of a percent.
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The CMS will also finish phase-in of the MA risk adjustment model and continue the phased-in approach for removing medical education costs from expenditures in growth rate calculations. Most insurers asked for the risk adjustment model to be paused.
The rate increase was supported by MA advocate the Better Medicare Alliance and the Alliance for Community Health Plans (ACHP). The ACHP was one of the few insurer groups to support the new risk adjustment model and did not want it delayed.
“ACHP commends the Trump administration for finalizing policies in the [rate notice] that reflect higher care delivery costs and for taking another step toward reining in aggressive risk adjustment to boost competition,” said President and CEO Ceci Connolly in a statement. “ACHP has long supported the new MA risk adjustment model and is pleased that CMS will finally complete the transition.”
Other groups were hopeful the new administration would be tougher on MA plans that are known to have damaging practices on prior authorization, upcoding and overpayments, among other issues.
“This is on top of the tens of billions of dollars in excess payments they already receive annually—more than $40 billion from insurers’ coding practices alone,” said Mark Miller, executive vice president of health care at Arnold Ventures. “Insurers will continue their scare tactics, but the fact is that they will see higher payments next year while at the same time continuing to receive billions in overpayments that threaten the long-term sustainability of the Medicare program.”
The higher-than-expected payment rates give managed care companies greater wiggle room in achieving plan profitability, allowing payers to expand benefits, said Tao Qiu, a senior healthcare equities research analyst at Macquarie.
Also included in the rate notice is a name change to the CMS star ratings health equity index. It will now be named the Excellent Health Outcomes for All (EHO4all) reward because “this name better captures the goal of ensuring exceptional care for all enrollees.” CMS will remove the current reward factor to meet this goal.
“The enrollees to be included in the EHO4all when it is implemented beginning with the 2027 star ratings include those that are dually eligible, receive a low-income subsidy or are disabled because these groups are at risk for poor health outcomes and star ratings data show gaps in the quality of care for these enrollees,” the announcement (PDF) said.
CMS said it is considering adding geography to this set of criteria, but any other changes, as well as a formal name change, must be completed through rulemaking.
In January, the CMS released the proposed rate, which would have increased payments by 2.23% and continued implementation of the risk adjustment model. Payments from the federal government would have increased by $21 billion, or 4.33%, the CMS said.
Doctors criticized the proposed rate, arguing insurers were once again receiving preferential treatment from the federal government. Providers and physicians said Congress still hasn’t reversed painful doc pay cuts implemented by the CMS as required by prior statute—and yet insurers were in line to get a boost.
The physician pay reversal was included in an end-of-the-year healthcare package before the bill failed at the eleventh hour due to other political considerations. It was again rejected in an effectively symbolic introduction by Senators Ron Wyden, D-Oregon and Bernie Sanders, I-Vermont, before the Senate agreed to a government funding bill.
The insurance lobby criticized Biden’s health officials during his tenure for enacting tougher rates on plans, so the 2.23% rate was more favorable to payers than initially expected. In 2024, the government finalized a cut of 0.16% to MA plans.
Starting Jan. 1, annual out-of-pocket prescription drug costs were capped at $2,000 for enrollees.
The CMS recently released its Contract Year 2026 MA and Part D final rule, choosing to punt on implementing agent and broker marketing requirements, most star ratings changes and imposing new guardrails on artificial intelligence. The rule also declined to adopt a Biden-supported policy to have Medicare and Medicaid cover anti-obesity drugs, but did include new requirements on prior authorization and Special Supplemental Benefits for the Chronically Ill.