Medicare Advantage in 2026: Assessing the Long-Term Value for Beneficiaries

The long-term value of Medicare Advantage for beneficiaries is being tested by a widening gap between its alluring promise and the tangible financial reality. The core draw remains powerful: a vast majority of plans offer extra perks like dental and vision coverage, often for no additional premium. In fact, two-thirds of all Medicare Advantage plans with Part D prescription drug coverage (67%) will charge no premium in 2026, a figure that has held steady from the prior year. This promise of comprehensive benefits at a flat cost has been a key reason for the program's rapid growth, enrolling over 34 million beneficiaries last year.

Yet, this value proposition is being eroded by two significant pressures. First, the fundamental cost-sharing burden is rising. The national median maximum out-of-pocket (MOOP) limit, a critical cap on annual expenses, has jumped to $5,900 in 2026, a 9.3% increase from the previous year. This is a direct hit to the financial safety net that many seniors rely on, effectively raising the floor of their potential medical costs.

Second, and perhaps more insidiously, the supplemental benefits that make MA plans feel like a premium package are being scaled back. While the headline dental and vision offerings remain nearly universal, the more discretionary extras are disappearing. The share of plans offering an allowance for over-the-counter items has fallen to 66% in 2026 from 73% in 2025, and the provision of meal benefits has dropped from 65% to 57%. These are not minor adjustments; they represent a retreat from the holistic health support that was once a hallmark of the program's appeal.

The bottom line is a trade-off that is shifting unfavorably. For many beneficiaries, the promise of free extras is being met with higher out-of-pocket limits and fewer of the ancillary benefits that improve daily well-being. This dynamic challenges the long-term value proposition, as the tangible savings and support that seniors seek are being diluted even as the core plan structure remains intact.

The Business Model Under Pressure: How Financial Strain Affects Coverage

The financial pressures on Medicare Advantage insurers are no longer just a headline concern; they are actively reshaping the coverage landscape for millions of beneficiaries. This strain is manifesting in tangible disruptions, from widespread plan terminations to the strategic recalibration of formularies under new federal rules.

The most direct impact is a wave of coverage disruption. According to recent CMS data, roughly 2.9 million enrollees are impacted by terminated plans in 2026, representing a 10% share of the total Medicare Advantage membership. This is a sharp increase from prior years, where the affected share ranged from 0.4% to 1.5%. The churn is driven primarily by contract non-renewals, creating instability for beneficiaries who must navigate the annual enrollment period to find a new plan. This level of disruption is a clear signal that some insurers are pulling back, likely due to the challenging economics of the market.

A major source of this financial pressure is the new regulatory environment, particularly the Inflation Reduction Act's Part D Maximum Fair Prices (MFPs). For the first time, these federal price caps are being implemented in 2026, directly affecting how health plans manage their prescription drug costs. The rules have already forced a strategic shift, with some plans attempting to place high-cost drugs like Eliquis on non-preferred tiers to control expenses. However, the Centers for Medicare and Medicaid Services (CMS) rejected these tiering decisions, highlighting the tight regulatory leash on cost management. As more drugs become subject to MFPs, the availability of traditional prescription drug rebates will diminish, leaving insurers with fewer tools to offset premiums and maintain competitive benefit packages.

This is part of a broader sector-wide financial squeeze. The profitability of the healthcare industry, measured by EBITDA as a share of national health expenditures, has been in decline. It fell from 11.2% in 2019 to 8.9% in 2024, and is expected to drop further to 8.7 percent by 2027. Payers and providers are bearing the brunt of this pressure. For Medicare Advantage insurers, this means a thinner margin for error. Every cost increase, whether from new regulations or rising medical costs, must be absorbed or passed through to beneficiaries in the form of higher premiums, reduced benefits, or both.

The bottom line is that the business model is under siege. The combination of mandated price controls, a shrinking profit pool, and the need to manage a massive, aging population is forcing difficult choices. The result is a market where coverage is less stable, formularies are more constrained, and the long-term sustainability of the current benefit package is being tested. For the value investor, this sector-wide financial strain is a critical factor in assessing the durability of any company's competitive position within it.

The Long-Term Compounding Question: Can the Model Sustain Itself?

The durability of the Medicare Advantage business model is now in question. Its long-term value hinges on whether the core competitive moat-built on network restrictions and sophisticated cost management-can hold against mounting financial and regulatory headwinds. The early signs suggest this moat may be eroding.

The market is consolidating, a classic sign of a maturing and pressured sector. The total number of individual Medicare Advantage plans has declined slightly from 5,084 in 2025 to 5,030 in 2026. This shrinkage, driven by a 9% drop in available plans for general enrollment, reflects a difficult calculus for insurers. With the healthcare industry's profitability under pressure-EBITDA as a share of national health expenditures expected to fall further to 8.7 percent by 2027-only the most efficient players can survive. This consolidation reduces choice for beneficiaries, with the average Medicare beneficiary now facing two fewer MA-PD plan options in 2026 than the year before.

More critically, the tools that insurers use to manage costs are being constrained. The primary moat is their ability to negotiate lower rates through network design and formulary management. Yet, new federal rules like the Inflation Reduction Act's Part D Maximum Fair Prices are directly limiting their leverage on drug costs. When these traditional cost-control levers are cut, the model's stability depends more on its ability to attract and retain a large, healthy membership base. The recent wave of plan terminations, affecting roughly 2.9 million enrollees in 2026, undermines this foundation. It creates churn and instability, which can deter new enrollment and weaken the risk pool.

The bottom line for the value investor is that the model's long-term compounding power is being tested. The widening gap between promised benefits and actual value, coupled with a shrinking plan landscape and eroding cost-management tools, raises questions about sustainability. The true test will come in the post-2026 period, particularly as enhanced Affordable Care Act subsidies expire. Monitoring enrollment trends then will be essential to gauge the underlying durability of demand. If beneficiaries begin to pull back from a program that offers fewer extras, higher out-of-pocket limits, and less stable coverage, it would signal a fundamental shift in the business model's economic moat.

What to Watch: Catalysts and Risks for Beneficiaries

For beneficiaries, the path forward for Medicare Advantage hinges on a few clear catalysts and a persistent, growing risk. The key will be to watch how effectively insurers manage the new financial realities and whether the market's evolution preserves or further erodes the program's value.

First, monitor plan-level financial performance. The implementation of the Inflation Reduction Act's Part D Maximum Fair Prices in 2026 is a major test. Insurers are already grappling with this, attempting to place high-cost drugs on non-preferred tiers but having those decisions rejected by CMS. The availability of prescription drug rebates will diminish as more drugs become subject to these federal price caps. The critical metric will be how carriers adapt. Can they find new sources of savings or leverage other financial mechanisms to offset these losses without cutting essential benefits or raising premiums? Their success-or lack thereof-will directly determine the stability and quality of coverage.

Second, track the pace of consolidation and the emergence of new players. The market is already shrinking, with the total number of individual Medicare Advantage plans falling from 5,084 in 2025 to 5,030 in 2026. This consolidation, driven by financial pressure, reduces choice and may concentrate power among a few large carriers. At the same time, the average beneficiary now faces two fewer MA-PD plan options than last year. The evolution of market concentration will shape competition and innovation. A healthy market needs both scale and dynamism; too much consolidation can lead to complacency, while a fragmented market may struggle with efficiency.

The overarching risk is a widening gap between promised benefits and actual value. This is the core vulnerability. The program's appeal has long rested on offering extras like dental and vision at no extra premium. Yet, as noted, the share of plans offering discretionary benefits like OTC allowances and meal benefits is declining. The percent of plans offering an allowance for over-the-counter items will fall to 66 percent in 2026. At the same time, the national median out-of-pocket limit has jumped to $5,900. If this trend continues-fewer perks, higher cost floors-beneficiaries may begin to feel the value proposition is hollow. This could lead to sustained dissatisfaction, increased churn, and more plan terminations, creating a self-reinforcing cycle of instability.

The bottom line is that beneficiaries are at the mercy of a system under stress. The catalysts to watch are the financial metrics that reveal insurer resilience and the market dynamics that signal whether competition can still drive improvement. The risk is that without a clear path to offset new costs, the program's promise will continue to outpace its delivery, testing the loyalty of its 34 million enrollees.