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McCourt School of Public Policy

Center on Health Insurance Reforms

Medicare Policy Initiative

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Leveling the Playing Field: Why Smaller Medicare Advantage Plans Are Calling for Payment Reform

on February 18, 2026

By Carrie Graham and Laura Skopec

In January 2026, the Centers for Medicare and Medicaid Services (CMS) released a Request for Information (RFI) seeking input on options to modernize Medicare Advantage (MA) payment, specifically recognizing that smaller MA plans may be disadvantaged by the current risk adjustment system. Reducing waste, fraud and abuse in health care spending is a bipartisan priority and a key focus of CMS’s current leadership. At the same time, CMS wants to ensure that smaller, regional MA plans remain competitive and continue to be offered as a viable choice for Medicare beneficiaries.   

In this blog, we elevate the views of smaller, local and regional MA plans on risk adjustment reforms that were discussed at a 2025 closed-door roundtable hosted by Georgetown University’s Medicare Policy Initiative, in partnership with West Health.  

Background

Originally, the MA program was approved by Congress with the goal of offering a private health plan option that would provide higher-quality care at a lower cost for both beneficiaries and the federal government. Over half of all Medicare beneficiaries now choose to enroll in MA, and they do, on average, accrue lower out of pocket costs and additional benefits. However, analysts estimate the federal government will spend approximately $76 billion more for MA beneficiaries in 2026 compared to those in traditional Medicare – estimated to result in $1.2 trillion in overpayments to MA plans by 2035. These overpayments are cause by both favorable selection (i.e., when MA plans attract enrollees with lower spending than their risk scores would predict), and “upcoding” – when MA plans assign diagnostic codes to enrollees that artificially inflate risk scores.  While recent changes to the risk adjustment system have lessened upcoding-related overpayments, the risk adjustment system continues to be scrutinized by Congress, CMS, and media outlets, with a particular focus on the use of in-home health risk assessments and chart reviews to mine higher-paying diagnoses.  

Policymakers have taken some steps to reduce MA upcoding and overpayment:  

  • Congress requires CMS to correct for upcoding by imposing a minimum 5.9% coding pattern adjustment across all MA plans.  
  • The V28 CMS-HCC model (implemented beginning in 2024) includes several coding changes specifically intended to reduce and better align payments with true clinical risk. 

What are local and regional MA plans, and why do they matter? 

The MA market is becoming more concentrated, with 77% of enrollees currently in a plan owned by one of 8 large national MA organizations, and less than a quarter enrolled in one of 150 local or regional MA plans.  We define local and regional plans as those with 500,000 or fewer enrollees. Some of these smaller plans are offered only in one market, while others are important players within a larger region. The majority of smaller plans are non-profit, and some focus on specific populations such as those who are dually eligible for Medicare and Medicaid. Smaller plans often have different business models and methods of operation, as well as smaller service areas and fewer financial resources than the larger, national carriers.  

As CMS has recognized, smaller local and regional MA plans can provide important choices for beneficiaries. In particular, they may be better able to innovate to meet the needs of their enrollees because of their historic connections to the communities they serve.  

How the current MA payment system advantages larger plans  

In recent years, as the MA market became more concentrated, certain payment strategies have made it increasingly difficult for smaller plans to compete.  

Current risk adjustment rules favor large MA plans that have the resources to invest in more aggressive coding.  For example, many plans use health risk assessments conducted in enrollees’ homes to glean additional diagnoses to maximize risk scores and payments. This requires personnel resources for home visits and technology to review charts.  Larger, more well-resourced MA plans have the funds to invest in these strategies while smaller plans may not.  In fact, large, national MA organizations (MAOs) tend to have the highest additional payments attributed to aggressive coding tactics and are more likely to use those tactics like in-home health risk assessments or chart reviews (though there is variation in coding intensity across both smaller and large regional plans). One MPI roundtable participant described the current incentives to aggressively code as an “arms race,” stating that smaller plans do not have the financial resources to compete with larger MAOs, and that the financial investments in chart reviews and HRAs for upcoding purposes could be better spent on patient care.   

The coding pattern adjustment can penalize plans that do not engage in aggressive coding. Congress requires CMS to impose a coding pattern adjustment of at least 5.9% on all MA plans. This adjustment reduces the amount each plan is paid in order to make up for the tendency of MA to code more aggressively compared to traditional Medicare. This across-the-board adjustment does not take into account that there is great variability in the amount of upcoding by plan.  For context, although 16 MAOs have an average coding intensity of more than 20%, MedPAC estimates that 15 percent of MA enrollees are in plans that upcode less than the 5.9% adjustment. The blanket coding pattern adjustment not only penalizes MA plans that do not routinely engage in upcoding – it also acts as a financial incentive for plans to invest more in aggressive coding strategies to ensure their risk scores can absorb the 5.9% adjustment. Congress gave CMS the authority to increase the coding pattern adjustment, but it has not done so.   

What do local and regional plans say about risk adjustment reform?  

Large national plans (and the trade associations that represent them) have generally opposed reforms such as the bipartisan NO UPCODE Act, which would remove some incentives for upcoding. For example, one large trade association argues that reforms to limit overpayment would “harm seniors” because any reduction in payment to MA plans would require plans to reduce benefits or increase costs for enrollees.  But in MPI’s 2025 roundtable, attendees from smaller plans said that competition based on aggressive diagnostic coding in MA burns through resources that could otherwise be spent on providing high-quality care. Thus, most roundtable participants supported reforms similar to those recommended by a trade association that represents smaller plans, including reforms that would simplify risk adjustment and reduce financial incentives to aggressively upcode.  

While plan representatives at the roundtable were not always united on any particular solutions, several were open to specific options that have been outlined by members of Congress, the administration, MedPAC, and researchers, including the following:  

  • Exploring opportunities to leverage technology, including electronic health records (EHRs) and artificial intelligence (AI).  Smaller plan representatives were hopeful that EHR data and AI could be used to reduce reporting burdens while fairly distributing resources among plans. However, no specific proposals were mentioned, and plan representatives noted that the design and operational issues would need to be carefully considered for their impact across the MA market. 
  • Reducing or eliminating the use of in-home health risk assessments (HRAs) for risk adjustment. While most participants emphasized that HRAs are an important tool for identifying beneficiary needs and coordinating care, many felt that the current system – which incentivizes plans to conduct HRAs in order to mine more profitable diagnoses – detracts from the original intent of HRAs as a tool to improve patient care. Some supported reforms that would eliminate the use of HRA-gleaned diagnoses for risk adjustment. One participant suggested that diagnoses from HRAs should only be used in risk adjustment if they required follow-up care. “… discussants were interested in policies that would maintain plans’ ability to capture codes in the home but require confirmation of those diagnoses through a handoff to a doctor and an in-office visit.” 
  • Preventing abuses of chart reviews. While some participants suggested eliminating chart reviews as a source for risk adjustment diagnoses, others noted that small plans with less sophisticated coding technology may still need to use chart reviews to ensure accurate payment. However, smaller plans generally supported requiring diagnoses from chart reviews to be linked to a specific encounter to prevent abuse. 
  • Focusing more federal oversight and audits on MA plans that have a record of upcoding. Many smaller plans were opposed to the CMS proposal to expand annual RADV audits to all plans. Instead, they preferred a policy that would focus on those plans with a history of the highest coding intensity. They argued that undergoing risk adjustment audits imposes higher costs and administrative strain on smaller MA plans, even though smaller plans are less likely to upcode, and audits therefore should be targeted rather than universal.   

What does this mean for policymakers considering changes to MA risk adjustment? 

There is currently bipartisan support in Congress and the administration for reducing waste, fraud, and abuse in health care. While most MA trade associations generally oppose any increased oversight of the program, smaller plans and their associations may be more open to reforms. These unique views from smaller, regional and local plans could help bolster the growing support for policymakers to reform payment policies.   

As debate about potential reforms continues, policymakers in CMS and Congress should bear in mind that changes to the MA payment system may affect smaller, more localized MA plans differently than the larger, national MA plans.  Policymakers should proactively seek feedback from smaller plans when considering MA reforms to ensure they are represented amid the typically dominant presence of large MAOs.  

For a description of the No UPCODE Act and other policy proposals to reform risk adjustment, see MPI’s Compendium of Medicare Advantage and Part D proposals.