Are Medicare Advantage rates as bad as they look?

It’s never a slow day when it comes to Medicare Advantage.

Payers spiraled and investors followed their lead after the Centers for Medicare and Medicaid Services (CMS) announced plans to keep Medicare Advantage (MA) payment rates nearly flat for 2027.

The advance notice, released Jan. 26, proposed a 0.9% payment bump for 2027, a big fall from 2026, when plans saw an average 5.06% increase. While the number isn’t final—CMS said in a release it will lock in rates by April 6—the damage was immediate.

Following the announcement, stocks for leading MA providers like UnitedHealth Group and CVS fell by a respective 20% and 14% and haven’t rebounded much. Humana, the second-largest MA provider after United, saw its stock prices take a tumble from $208 on Jan. 27 to $178 upon market open on Feb. 13.

MA leaders and outside analysts say this unexpectedly small increase amplifies current financial struggles. But it’s debatable whether the cuts will hurt payers as much as they claim.

Zooming out. For one, the 0.9% number doesn’t factor in an expected rise in risk scores, which are the beneficiary-level payments that increase for patients with more severe diagnoses, Matthew Fiedler, senior fellow with the Center on Health Policy at nonprofit research organization the Brookings Institution, told Healthcare Brew.

CMS wrote in the advance notice it expects enrollees’ average risk scores to rise in 2027, increasing payments by 2.45% on average because of new coding practices and population changes. Add that to the 0.9% rate bump, and that would make at least a 2.54% increase.

“The headline estimate that comes out of the CMS advance notice is not a good guide to how insurers’ per-enrollee revenues would actually change,” Fiedler said.

Researchers at the Georgetown University Center for Health Insurance Reform’s Medicare Policy Initiative also pointed to this issue as contributing to a payment “underestimate” for 2027.

Still, that’s probably less than the plans were counting on, Fiedler added.

“They can respond to that by accepting lower profit margins. They can respond to that by dialing back benefits. They can respond to that by finding other ways to cut costs, and I think they’ll probably do some mix of the three,” he said.

UnitedHealth Group CEO Stephen Hemsley said in a Jan. 27 earnings call that if the advance notice is finalized in its current form, he predicts “very meaningful benefit reductions” and potentially pulling back plans from more counties.

Cara Repasky, a partner at consulting firm McKinsey and Company, told Healthcare Brew via email this rate increase could have a “major impact” on payer margins, though there are steps plans can take without cutting benefits.

Kata Kertesz, managing policy attorney at the nonprofit Center for Medicare Advocacy, also sent an emailed statement to Healthcare Brew arguing it would be a choice—not a necessity—for MA plans to cut benefits in 2027.

“When MA plans express concerns about the payment rates leading to decreasing benefits, it exposes just how profit driven the industry is,” she told us.

Speaking of risk scores…The advance notice also suggests restricting how risk scores are calculated. Kertesz called this an “important step in the right direction.”

These risk scores were created with the goal of incentivizing plans to keep patients with costly medical expenses. Multiple government investigations have alleged, however, that these scores are being manipulated to make patients seem sicker than they actually are.

The advance notice suggests using newer data to pay MA plans and exclude diagnoses from chart reviews that aren’t linked to patient–doctor visits. CMS estimates that getting rid of those diagnoses would decrease MA plan payments by an average of 1.5%.

Fiedler is “skeptical” it would have that large of an effect, however.

“Plans have lots of [other] ways to capture the diagnoses that they’re currently submitting on these unlinked chart review records,” Fiedler said.

The government will pay MA plans $76 billion more for enrollees in 2026 than what it would pay if those same patients were enrolled in traditional fee-for-service Medicare, according to a Jan. 16 report by the nonpartisan Medicare Payment Advisory Commission (MedPAC).

MA lobbying group the Better Medicare Alliance, however, has criticized MedPAC’s methodology, saying it “exaggerates Medicare Advantage spending,” and UnitedHealth commissioned its own research from independent actuarial firm Milliman that estimated 2025 MA payments cost the federal government 9% less than traditional Medicare.

But a Senate Finance Committee report published on Jan. 12 calls out United in particular for its ability to “stay ahead” of CMS efforts to limit risk adjustment scoring by finding new ways to “capture untapped risk score-garnering.”

“Over the long run, I expect plans to be able to adapt,” Fiedler said.