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US Proposes Higher Payment Rates for 2026 Medicare Advantage Insurers

AInvestFriday, Jan 10, 2025 6:43 pm ET
5min read


The Centers for Medicare and Medicaid Services (CMS) has proposed a more generous increase in payments to Medicare Advantage (MA) plans for 2026, which could significantly impact the financial performance of major insurers like UnitedHealth Group, Humana, and CVS Health. The proposed increase in payment rates is 4.33%, or $21 billion, to MA plans in 2026, compared to the 3.32% increase in 2024 and the 3.7% increase in 2025. This is the largest proposed increase since 2023, which was one of the largest-ever payment hikes for the industry.

The proposed increase in payments will bolster revenue for these companies, as they will receive an additional $21 billion in payments in 2026 compared to expected payments in 2025. This increase in revenue can be attributed to the proposed 4.33% increase in payment rates, excluding expected changes in patient risk scores, which would result in a 2.2% increase in payments.

Following the announcement of the proposed rate notice, share prices for the three largest MA insurers rose significantly. Humana gained 7%, UnitedHealth was up 3.9%, and CVS Health increased by 2.7% in trading after New York markets closed. This positive market reaction indicates that investors are optimistic about the potential financial benefits that these companies may experience as a result of the proposed increase in payments.



In addition to the direct impact on revenue, the proposed increase in payments may also help these companies maintain or improve their margins, as they will have more resources to cover rising medical costs and other expenses. This could lead to improved financial performance for these companies in the long run.

However, it is important to note that the final decision on the proposed rate notice will be made by the incoming Trump administration. While there is some optimism that rates could improve under a Trump CMS, the final outcome remains uncertain. The proposal is open for public comment until February 10, and the final notice will be published on or before April 7.

The proposed increase in payments to MA plans in 2026 comes as the CMS completes the three-year phase-in of risk adjustment changes in 2026. The changes shift MA's diagnosing coding from ICD-9 to ICD-10 and remove certain codes from the hierarchical condition categories (HCC) model. In 2026, the final year of the phase-in, the shift will result in a 3% decrease in payments to plans. However, CMS estimates that this decrease will be offset by a 5.93% increase in the effective growth rate and a 2.1% increase in risk score trends.

Payers have opposed these changes, arguing that they amount to a cut in payments. CMS Administrator Chiquita Brooks-LaSure said the rate notice "continues CMS' efforts to provide access to affordable, high-quality care in Medicare Advantage while being a good steward of taxpayer dollars."

The proposed increase in payments to MA plans in 2026 could have significant implications for the MA market, including changes in plan availability, benefits, premiums, and competition. However, the final outcome will depend on the priorities and policies of the incoming Trump administration.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.