On January 26, 2026, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2027 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the CY 2027 Advance Notice). Here’s an overview of what the advance notice is, what was proposed for 2027, and what happens next.
What is the Medicare Advantage Advance Notice?
The Centers for Medicare & Medicaid Services (CMS) releases the Advance Notice annually. In it, CMS proposes methodological changes for Medicare Advantage (MA) capitation rates and Part C and Part D payment policies for the upcoming calendar year. It is a statutory requirement under the Social Security Act. CMS uses it to update payment rates and perform technical updates to ensure payment accuracy and program stability.
Key components and functions of the Advance Notice include:
Proposing Payment Methodologies
It outlines planned changes to the MA capitation rate methodology and the risk adjustment methodology applied to Medicare Part C and Part D.
Providing Growth Estimates
The notice includes preliminary estimates of the national per capita MA growth percentage and the national Medicare Fee-for-Service (FFS) growth percentage. These serve as important factors in determining plan benchmarks.
Adjusting Benefit Parameters
It discusses annual adjustments to Medicare Part D benefit parameters for the defined standard benefit. These include deductibles and out-of-pocket thresholds.
Updating Star Ratings
CMS provides information on updates to Part C and D Star Ratings in accordance with federal regulations. These updates include measure specifications and disaster adjustments.
What Did CMS Propose in the 2027 Medicare Advantage Advance Notice?
Key highlights from the 2027 Medicare Advantage Advance Notice include:
Payment Rates and Revenue Projections
CMS proposed a net average year-over-year payment increase of 0.09%, equating to approximately $700 million in additional payments. This is considerably lower than the 4% to 6% increase expected by industry analysts. When accounting for the “risk score trend”—the estimated increase in risk scores due to coding practices and population changes—the expected average change in plan revenue is 2.54%.
The current estimate for benchmark growth, driven by Original Medicare per capita costs, is 4.97%.
Part C Risk Adjustment
CMS also suggested several Part C Risk Adjustment modifications. Those included:
- Exclusion of Unlinked Chart Reviews: CMS proposed a major integrity update by excluding diagnoses derived from unlinked chart review records—diagnosis information not associated with a specific medical encounter—from risk score calculations starting in 2027. CMS predicts this change will save Medicare more than $7 billion in 2027.
- Updated Data Calibration: CMS will calibrate the Part C risk adjustment model (Version 28) using more recent data – 2023 diagnoses and 2024 expenditures. This replaces older pre-COVID data to reflect current medical costs.
- Audio-Only Exclusion: CMS plans refinements to exclude diagnoses from audio-only telehealth encounters. These refinements align with clinical requirements for face-to-face or interactive audio-video visits.
Medicare Part D and IRA Alignment
Several proposals aimed to align Medicare Part D and the Inflation Reduction Act requirements:
- Inflation Reduction Act (IRA) Integration: Proposed Part D risk adjustment updates reflect changes mandated by the IRA, including phasing in increased manufacturer discounts for specific small manufacturers.
- Separate Calibration for MA-PD and PDPs: To improve predictive accuracy, CMS proposes calibrating the Part D model separately for Medicare Advantage prescription drug (MA-PD) plans and standalone prescription drug plans (PDPs).
Updates for PACE Organizations
CMS is accelerating the transition of Program of All-Inclusive Care for the Elderly (PACE) organizations to newer risk models. For 2027, CMS will calculate PACE risk scores using a 50/50 blend of the 2017 CMS-HCC model and the proposed 2027 model.
Star Ratings
CMS provided a list of eligible disasters for the Extreme and Uncontrollable Circumstances policy. Those disasters include the 2025 Los Angeles wildfires and severe storms in Texas. Affected contracts will receive the higher of their current or prior year’s measure-level ratings for applicable measures.
Starting with the 2027 Star Ratings, CMS will use data from Part C Reporting Requirements to verify the completeness of appeals data used for the “Plan Makes Timely Decisions about Appeals” and “Reviewing Appeals Decisions” measures. If CMS identifies data integrity issues, it will implement scaled reductions to those ratings.
CMS plans to implement a revised calculation for the Categorical Adjustment Index (CAI) in cases of contract consolidations. For the first two years after a consolidation, CMS will determine the surviving contract’s percentage of Low-Income Subsidy/Dual Eligible (LIS/DE ) and disabled enrollees by combining enrollment data from all involved contracts. The notice also identifies the specific measures CMS will include in the 2027 improvement measures and the 2027 CAI values.
Industry Reaction
The industry reaction to the 2027 Advance Notice was overwhelmingly negative. Major payer lobbies and physician groups characterized the proposal as “wholly unrealistic” and a threat to the stability of the MA program.
Key areas of industry concern and reaction include:
Disappointment Over Payment Rates
Industry analysts had projected a payment rate increase between 4% and 6%. However, CMS proposed a net average year-over-year increase of only 0.09%. Even when factoring in the “risk score trend,” which CMS estimates at 2.54%, analysts argue the rates are insufficient to cover rising medical costs and utilization. Payer lobby AHIP and the Alliance of Community Health Plans (ACHP) warned that these “wholly unrealistic” rates would likely force insurers to cut supplemental benefits, increase out-of-pocket costs for seniors, or exit underperforming markets. America’s Physician Groups (APG) stated the notice heralds a period of “greater instability” and argued that the projected 4.97% effective growth rate does not comport with the rising healthcare utilization seen daily by providers.
Market and Stock Impact
Following the release of the notice, shares of major publicly traded insurers dropped. Humana shares fell between 12% and 14%. UnitedHealth and CVS saw drops of approximately 8% to 9%, and Elevance fell 5%. Analysts from Mizuho and Baird noted that the proposed update falls well below expectations. They explained it could delay the “embedded earnings story” for companies with significant exposure to the MA market.
The proposal to exclude diagnoses from unlinked chart reviews was a primary point of contention. CMS estimates this exclusion will save Medicare over $7 billion in 2027. However, ACHP called the exclusion of unlinked chart reviews a “welcome step” toward curbing upcoding and gaming. However, they note this is true only if smaller or regional plans are not unintentionally disadvantaged. Other segments of the health insurance industry argued that chart reviews are essential tools for ensuring payers have a comprehensive picture of their members’ health needs.
Financial analysts predicted “intense advocacy efforts” and negative messaging from carriers as they attempt to lobby for higher rates before the final Rate Announcement is published in early April.
What are the Next Steps
Following the release of the 2027 Advance Notice, a formal statutory process and an anticipated period of industry advocacy occur before the policies are finalized. The key next steps are as follows:
- Public Comment Period: CMS is currently inviting feedback on the proposed methodological changes by 11:59 p.m. Eastern Time on February 25, 2026. Stakeholders can submit comments electronically via www.regulations.gov by searching for docket number “CMS-2026-0034”.
- Industry Advocacy and Lobbying: Given the overwhelmingly negative reaction to the proposed 0.09% rate increase, industry analysts expect a period of lobbying and negative messaging from insurance carriers. Carriers typically lobby CMS for higher rates during this window. They are likely to do so heavily this year because the proposed update is well below the 4% to 6% increase many analysts anticipated.
- Final Rate Announcement: After reviewing the public comments, CMS will finalize the payment policies and capitation rates. The final CY 2027 Rate Announcement is expected no later than April 6, 2026.
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