Trump's CMS dramatically increases payments for Medicare Advantage Plans

Diving briefs:

The Trump administration handed the Medicare Advantage Plan a massive gift on Monday, significantly outpacing the 2026 payment rate than Biden's regulatory authority sketched. The 5.1% benchmark increase should accelerate margin recovery for privatized Medicare plans, following years of fees they said were inadequate, especially as they were consistent with rising costs of care for older adults. The insurance company's shares skyrocketed after payment notices were announced. The Trump administration was also completed in stages with changes to insurance companies' coding practices. This is intended to make it difficult to inflate members' illnesses and earn a higher refund. The changes are not popular in the MA plans and are lobbying heavily to reverse them.

Dive Insights:

The 5.1% rate increase in the MA plan is the biggest rate increase in the last decade, rising significantly from the 2.2% increase proposed by the Biden administration in January.

Overall, according to CMS, there should be more than $25 billion in additional payments for the MA plan next year.

However, the substantial total is high given that CMS estimates do not include the impact of the plan. Changes in revenue forecasts for MA plans jump from 5.1% to 7.2%, including the impact of risk scoring.

It's hard to say how much this will inflate refunds at MA next year. This is a program that is expected to cost approximately $600 billion in taxpayers overall in 2025.

However, Lynnonmaker, senior director of healthcare consultant McDermott+, said:

The final rate is generally higher than the proposed rate, but the jump between the two was greater than some analysts had expected.

The CMS said the final rate is more generous as the refund was calculated using recent data reflecting even higher Medicare spending to keep up with the increased costs that reached payer profits over the past year.

Regulators have increased effective growth rate, a metric that tracks Medicare cost growth, by over 9% in the final notification. “It may be the biggest increase we've seen,” wrote Whit Mayo, analyst at Leerink Partners, in a note on Monday.

“This is very positive,” Mayo said.

Given the inclusion of data from the third and fourth quarters, it is not surprising that growth rates have increased significantly, given that it is planned for previous concerns that the previous estimates are too low, non-nemarker noted. But “I can't say I'm expecting 9%,” she said.

Rate notifications will strengthen “MA rates will be affected” given the CMS has given multiple metrics “generous upward revisions” to cost-related metrics, Jeffreys analyst David Windley wrote in a note Monday.

“We're keeping that Trump's administrators have fingers on scale,” he said.

As Oz has expressed support for past privatized Medicare programs, Dr. Mehmet Oz, a doctor and television personality, was expected to be friendly to the MA plan.

However, during his confirmation process, Oz walked the tiny line between supporting the MA and pledges to curb profits in a plan that brought them under Congressional scrutiny and caused dissatisfaction among the American people.

Early MA rules from the Trump administration suggest that regulators are committed to balancing that tightrope. CMS recently completed rules that put some guardrails on denial of coverage on MA plans, but refused to take the more radical steps proposed by its predecessor.

Biden administration regulators worried that the Trump administration would halt changes in the way MA plans adjust the risks of beneficiaries, calling the reforms “important” to ensure accuracy in fact sheet payments on rules proposed in January.

The adjustment is to prevent an upcode if insurance companies need to exaggerate their members' health to get a higher rebate from the government. They do so by making the plan coding process more accurate, such as removing frequently gamed medical codes from risk adjustment models.

CMS first enacted changes in 2023, but deployed them over three years to reduce the shock of insurance companies. In 2026, 100% of the beneficiary risk scores are set to be calculated using the new model.

That remains a plan. Complete the model “will improve payment accuracy and reduce the burden,” the CMS wrote in its final rules, adding that MA plans have enough time to assess the impact of implementation.

“I don't think there's any need to delay it even further given this experience,” CMS said.

The Trump administration has also finalised other payment policies that could be reduced to revenues in the MA plan, including changes to normalization factors that adjust the risk score of subscribers. According to non-manufacturers, CMS has received considerable pushback in comments on rates.

Still, the MA Industry lobby, Better Medicare Alliance, thanked the Trump administration in a statement Monday that “full funding”;

Stocks of MA's major payers, including UnitedHealth and Humana, jumped over the aftermarket on Monday after the release of the rules. Humana, particularly exposed to MA, quickly rose 16% after the fees were announced.

Payment hikes should help quarantine insurance companies from the worst cost rises that flattened margins last year, as older people with privatized Medicare plans used more healthcare than expected. National payers have already cut profits and have closed the 2025 low-performing market to revive margins.

The plan is likely to focus on higher 2026 rebates to improve profits, but it could also increase profits, analysts said. As a result, there could be more seniors eligible for Medicare who have chosen to participate in MA.

“Overall, we consider the final notification (2026) as the best scenario,” says Ryan Langston. Analysts at TD Cowen wrote in a memo on Monday.