Medicare Advantage Payments to Increase Again

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On Monday, the Centers for Medicare & Medicaid Services (CMS) published the Calendar Year (CY) 2026 Medicare Advantage and Part D Rate Announcement, finalizing payment policies for 2026. The expected effect of the policies included in the Rate Announcement, as well as underlying assumptions about economic conditions and Medicare Advantage enrollment and coding patterns, is a 7.2% increase in the payments to Medicare Advantage plans. This increase is larger than the 4.3% increase in Medicare Advantage payments that was projected in the Advance Notice released in January. The increase translates into an additional $35 billion to Medicare Advantage plans in 2026 compared to this year (those estimates include the impact of risk code trends, which add an additional 2.1% or $10 billion to the $25 billion reported in some places).

The increase in payments is larger than for 2025 (3.7%) or 2024 (3.3%), but below the increase for 2023 (8.5%), and comes at a time of increasing scrutiny over Medicare Advantage payments, and government spending generally. In particular, the Medicare Payment Advisory Commission estimates that the federal government pays Medicare Advantage plans 20% more per person than it spends on similar people in traditional Medicare, at a cost of $84 billion in 2025.

According to CMS, the 7.2% increase is largely driven by the growth in spending per person in traditional Medicare, which is the starting point for Medicare Advantage benchmarks, pushing up Medicare Advantage payments by 9.0%. The underlying trend of more intense documentation of diagnoses codes in Medicare Advantage, which makes Medicare Advantage enrollees look sicker than similar people in traditional Medicare, and is a subject of controversy, is expected to contribute another 2.1%. Those two factors are partially offset by changes to how CMS adjusts plan payments based on enrollees’ characteristics and health status, also known as the risk model (-3.0%), and other factors (-1.0%).

The Rate Announcement also finalizes the phase-in of two policies that began under the Biden Administration. First is an adjustment to the calculation of spending per person in traditional Medicare to remove Medicare Advantage-related medical education costs. Second is the use of an updated risk adjustment model. If these changes had not been finalized, payments to plans would have been even higher.

In response to the Rate Announcement, stocks for many Medicare Advantage insurers surged since the expected increase in payments is larger than proposed in January of this year. However, the reason for the difference appears to be primarily technical rather than a policy decision. Viewed in a broader context, the 2026 payments could be interpreted as maintaining the status quo. For example, neither the House nor Senate budget resolutions call for Medicare Advantage savings to help offset the cost of extending the 2017 tax cuts or reduce the debt, suggesting that finding efficiencies in the Medicare Advantage program may not be a high priority for the Administration or lawmakers in Congress. Instead, payments to Medicare Advantage plans will increase again.