We wrote about the 2026 Medicare Advantage and Part D Advance Notice in January. On April 7, the Centers for Medicare and Medicaid Services finalized that notice with the Announcement of Calendar Year (CY) 2026 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies.
Here’s a look at the factors that determine how much CMS pays MA plans and what changes the Payment Policies introduce:
What are the CY 2026 MA Capitation Rates and Part C and Part D Payment Policies?
The 2026 Medicare Advantage and Part D Payment Policies finalize the payment policies for Medicare and Medicaid for the 2026 calendar year.
What factors determine payments to MA plans?
CMS determines payments to MA plans using various factors. The annual Rate Announcement and related rules outline these factors. Key elements that determine payments to MA plans include:
- MA Capitation Rates: CMS sets annual capitation rates for each Medicare Advantage payment area. These rates serve as the foundation for payments to MA plans.
- Risk Adjustment: Payments are adjusted based on the health status of the enrollees in an MA plan. CMS uses CMS-Hierarchical Condition Category (CMS-HCC) risk adjustment models to calculate risk scores. It provides higher payments for plans enrolling individuals with more complex health needs.
- Effective Growth Rate: This rate reflects the current growth estimate in benchmarks determining payment for MA plans. The Office of the Actuary estimates Medicare Fee-For-Service (FFS) per capita costs. That estimate primarily drives the growth rate.
- MA Coding Pattern Difference Adjustment: CMS applies a statutory minimum adjustment to account for differences in coding patterns between MA plans and providers under Medicare FFS Parts A and B.
- Star Ratings and Quality Bonus Payments (QBPs): A plan’s Star Rating, which measures quality and performance, can affect payment through Quality Bonus Payments.
- Rebate: If an MA plan’s bid for providing services is lower than the benchmark (the maximum amount CMS will pay), the plan receives a rebate. Plans must use a portion of this rebate to provide supplemental benefits to enrollees.
- Technical Adjustment for Medical Education Costs: CMS is completing the phase-in of a technical adjustment related to indirect and direct medical education costs associated with services furnished to MA enrollees.
- Geographic Factors: Geographic factors also influence the benchmark rates upon which payments are based.
What changed from the Advance Notice?
Several key aspects of the 2026 MA and Part D payment policy changed between the Advance Notice and the final Rate Announcement:
Projected Increase in MA Payments
CMS projects the final policies in the CY 2026 Rate Announcement to result in an average increase of 5.06% in MA payments to plans in CY 2026. By comparison, the 2026 Advance Notice predicted a 2.23% expected average change in revenue. The increase translates to over $25 billion in MA payments in CY 2026. Some estimates suggest a total increase of $35 billion when including the impact of risk code trends.
Effective Growth Rate
The most significant driver of the increased payment projection is the effective growth rate. That rate rose from 5.93% in the CY 2026 Advance Notice to 9.04% in the Rate Announcement. CMS states that this change is primarily due to incorporating additional data on FFS expenditures, including payment data through the fourth quarter of 2024, which was unavailable when the Advance Notice was published.
Rebasing/Re-pricing Impact
The impact of rebasing/re-pricing was To Be Determined (TBD) in the 2026 Advance Notice. The 2026 Rate Announcement finalized this impact at -0.28%. This impact is dependent on the finalization of the average geographic adjustment index.
Technical Adjustment to Medical Education Payments
While the Advance Notice proposed completing the three-year phase-in of the technical adjustment for medical education payments, the Rate Announcement finalized the application of 100 percent of this adjustment for CY 2026.
Part D Redesign Program Instructions
The final CY 2026 Part D Redesign Program Instruction included one update from the Draft Instructions. It revised Section 50 to set the minimum threshold for evaluating Medicare Part D Standalone Prescription Drug Plan, meaningful differences to 10% from the 15% threshold included in the Draft CY 2026 Program Instructions.
The most substantial change was the upward revision of the projected payment increase for MA plans, driven by a significantly higher finalized effective growth rate due to the availability of more recent FFS expenditure data. Other changes involved finalizing the rebasing impact and providing updates on technical adjustments and specific program instructions. Policies outlined in the Advance Notice that were not modified or retracted in the Rate Announcement became effective.
What will the impact be on plans and beneficiaries?
CMS anticipates the payment increase will provide continued stability for the MA program and its beneficiaries while ensuring accurate and appropriate payments to MA organizations. CMS noted that despite a lower payment increase in the CY 2025 rate announcement, plan availability, choice, enrollment, and benefit offerings remained stable or grew.
Additionally, in 2025, approximately 99% of people enrolled in Medicare had access to at least one MA health plan in their area. Meanwhile 98% had access to ten or more MA plan choices (including Special Needs Plans (SNPs)). The average number of MA plan choices per county remained strong. CMS doesn’t expect the payment increase to impact plan choice.
Supplemental benefits also aren’t likely to be negatively impacted. In 2025, a high percentage of MA plans offered supplemental benefits such as hearing and/or dental (97%) and vision (99%).
The continued implementation of IRA provisions related to the Part D benefit for 2026, such as the $35 cap on insulin cost-sharing and no cost-sharing for adult vaccines, will also directly benefit enrollees by lowering their out-of-pocket costs.
Following the announcement of the higher payment increase, stocks for many Medicare Advantage insurers reportedly surged. This surge suggests a positive market view of the finalized rates.
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