The Centers for Medicare and Medicaid Services (CMS) recently released its annual Medicare Advantage (MA) and Part D Advance Notice. A final Rate Announcement for CY 2026, to be published this spring, will follow the Advance Notice.
What is the MA and Part D Advance Notice?
The 2026 Medicare Advantage and Part D Advance Notice details proposed updates to MA and Part D programs. Here are some key aspects of the Advance Notice:
- It includes proposed updates to the payment methodology for MA and Part D, including adjustments for risk, growth rates, and quality bonuses.
- It provides information about benefit parameters for the Part D program, including those affected by the Inflation Reduction Act.
- It includes details on risk adjustment models for Part C and Part D.
- It seeks feedback on potential updates to Star Ratings for MA and Part D plans.
In addition to the Advance Notice, CMS released a Fact Sheet to provide additional information and context.
What payment changes should health insurers expect as a result of the 2026 Medicare Advantage and Part D Advance Notice?
For CY 2026, CMS proposed an average increase of 4.33% in payments to MA plans, totaling over $21 billion. Various factors drive this increase, including:
- Growth rates of underlying costs
- Star Ratings for 2026 quality bonus payments
- The continued phase-in of risk adjustment model updates
- Risk score increases due to the MA risk score trend
CMS expects these proposed updates to result in stable premiums and benefits for individuals in CY 2026.
Why is CMS proposing an increase in payments?
CMS is proposing a 4.33% average increase in payments to MA plans. This increase is a substantial shift from the 0.16% decrease in 2025.
Several factors contribute to this proposed increase:
Growth in Underlying Costs
The Effective Growth Rate, a significant driver of the overall payment increase, is set at 5.93%, up from 2.23% in 2025. This rate reflects the growth in per capita costs for individuals in traditional Medicare Fee-For-Service (FFS). The Effective Growth Rate includes a technical adjustment related to medical education costs. CMS proposes to complete the phase-in of this adjustment in 2026, applying 100% of it, leading to a reduction in growth rates.
Risk Adjustment Model Phase-In
CMS proposed to complete the three-year phase-in of an updated risk adjustment model in 2026. While this model, finalized in 2024, aims to improve payment accuracy, CMS projects a 3% decrease in payments to plans in its final phase. However, other factors offset this decrease, like the increase in the effective growth rate.
MA Risk Score Trend
The projected increase also considers the MA risk score trend, estimated at 2.10% for 2026. This trend reflects the average annual rise in MA risk scores, driven by factors like coding patterns and demographics. Despite implementing an updated risk adjustment model, the risk score trend has historically increased steadily.
Quality Bonus Payments
While CMS anticipates a 0.7% decrease in Star Ratings bonus payments to plans, this decrease is overshadowed by the increases from other contributing factors.
What is the MA Risk Score?
The MA Risk Score Trend is a key factor in determining the overall level of payments to Medicare Advantage (MA) plans. It represents the estimated average annual increase in MA risk scores from one year to the next. The MA risk score measures the health status of a plan’s enrollees, with higher scores indicating sicker populations and leading to higher payments to plans. CMS calculates the trend using the proposed risk adjustment model for the upcoming year.
Several factors drive the MA Risk Score Trend:
MA Diagnosis Coding Patterns
The primary driver of the MA risk score trend is changes in MA diagnosis coding patterns. Increases in the trend could reflect either an actual rise in the average health status of MA beneficiaries or changes in coding practices.
MA Demographics
The trend is also influenced by MA demographics. Different demographic groups may have varying health profiles and healthcare utilization patterns, which can affect the diagnoses recorded and ultimately impact risk scores.
Risk Adjustment Model
CMS calculates the risk score trend using the risk adjustment model proposed for the payment year. Therefore, changes to the model, such as the transition from the 2020 CMS-HCC model to the 2024 CMS-HCC model, will also affect the trend.
Historically, the MA risk score trend has steadily increased over time, even in years when CMS implemented updated risk adjustment models.
Calculation of the MA Risk Score Trend
For CY 2026, CMS proposed calculating the MA risk score trend as the average annual change in MA risk scores, using the 2024 CMS-HCC model, over two years from 2022 to 2023 (based on 2021 and 2022 dates of service). This represents a departure from the historical method of using a rolling three years of data, necessitated by the impact of the COVID-19 pandemic on risk scores.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic significantly affected MA risk scores due to decreased healthcare utilization in 2020. This disruption led CMS to use average MA risk scores from 2018 through 2020 for CY 2024 and CY 2025 to avoid incorporating the pandemic’s effects on risk scores.
Transition to Two Years
For CY 2026, CMS aims to reflect MA experience since the pandemic using available data from 2022 and 2023. However, the lack of a third year of post-pandemic data necessitates using two years for the trend calculation.
Future Calculations
CMS expects to return to using a rolling three years of MA risk scores for CY 2027 when more post-pandemic data is available.
The projected MA risk score trend for CY 2026 is 2.10%. This is lower than the CY 2025 MA risk score trend of 3.86% CMS calculated using a blend of the 2020 and 2024 CMS-HCC models and risk scores from 2018 through 2020. The difference reflects the impact of using more recent data and phasing in the 2024 CMS-HCC model.
What’s the next step in the process?
The next step in the process is the public comment period. The 2026 Medicare Advantage and Part D Advance Notice and the Draft CY 2026 Part D Redesign Program Instructions are open for public comment until next month.
After the public comment period closes, CMS will review all the comments received and consider them before finalizing the payment policies for CY 2026. The Rate Announcement will include the finalized MA capitation rates and payment policies for CY 2026.
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