By Neil Patil and Rachel Schmidt
In January 2026, the Centers for Medicare & Medicaid Services’ (CMS) Calendar Year (CY) 2027 Medicare Advantage (MA) Advance Notice proposed what appeared to be a near-flat payment update: a 0.09% increase, or roughly $700 million. When accounting for expected MA risk score growth as well, that translated to a 2.54% increase, or about $13 billion. By April, however, the finalized CY 2027 Rate Announcement told a different story: CMS landed on a 2.48% payment increase—more than $13 billion—and 4.98% (or approximately $26 billion) when incorporating risk score trends.
This upward revision is notable, but it is far from unprecedented. In fact, it reflects a broader pattern in MA rate-setting: proposed payment updates are often revised upward in the final Rate Announcement. This blog examines what changed between the Advance Notice and the final Rate Announcement, why payments increased, and how common this pattern has been in recent years.
A Near-Flat Starting Point: CY 2027 Advance Notice
The CY 2027 Advance Notice initially signaled a restrained approach to MA payments. The proposed 0.09% increase suggested a year of minimal growth, particularly when compared to prior years of more robust payment updates.
After factoring in expected growth in costs of nearly 5%, CMS proposed several policy changes that would have led to this relatively modest increase, most notably:
- Updating the Risk Adjustment Model: CMS proposed updating the underlying Medicare fee-for-service (FFS) data used to calibrate the Version 28 (v28) risk adjustment model from 2018 diagnoses and 2019 expenditures to 2023 diagnoses and 2024 expenditures. This would have updated the model to reflect more recent spending patterns associated with various diseases, conditions, and demographics. When combined with the normalization factor, an adjustment to account for projected growth in Medicare FFS spending between 2024 and 2027, updates to the risk adjustment model would have been the single largest factor behind the modest proposed update.
- Limiting Sources of Diagnoses: CMS proposed excluding diagnoses derived from chart reviews (CRRs)not linked to a clinical encounter. This proposal aimed to address longstanding concerns about how MA coding intensity leads to higher MA payments than under Medicare FFS, worsening the financial sustainability of the program. CMS also proposed refinements to exclude diagnoses from audio-only encounters.
Taken together, these proposals signaled that CMS had planned to tighten MA payments through both technical updates and policy changes that targeted coding practices.
A Meaningful Increase: CY 2027 Rate Announcement
When CMS finalized the CY 2027 Rate Announcement, it incorporated a 2.48%—or over $13 billion— MA payment increase over 2026 levels, due to more complete spending data and policy decisions to reverse some of the agency’s initial proposals. When accounting for the MA risk score trend, this amounts to a 4.98% (or approximately $26 billion) MA increase over 2026 levels.
Several key changes explain this shift:
- Updated Medicare FFS Spending Data Increased the Effective Growth Rate: CMS incorporated newly available FFS data through the fourth quarter of 2025 when calculating the effective growth rate. Because FFS spending trends were stronger than previously estimated, this update contributed modestly (0.36 percentage points) to higher MA payment rates.
- Modification to the Unlinked CRR Policy: While CMS finalized its proposal to exclude diagnoses from unlinked chart reviews, it introduced an important modification: diagnoses from unlinked CRRs will still be allowed for beneficiaries who switch between MA organizations. This adjustment softened the policy’s financial impact. Without it, the reduction in MA payments for 2027 would have been approximately -1.78%, compared to -1.53% as finalized.
- CMS’ Deferral to Update the Risk Adjustment Model Data: Most notably, CMS chose not to finalize the proposal to update the v28 model with more recent Medicare FFS data. Instead, the agency retained the existing calibration (based on 2018 diagnoses and 2019 expenditure data), citing a desire to “allow the MA market more time to adjust” following the recent phase-in of the v28 model. This decision substantially reduced the negative impact on payments. The combined effect of risk model revisions and the normalization factor would have reduced MA payments in 2027 by -3.32%. After the decision to keep the older risk adjustment model, the final Rate Announcement noted that the normalization factor alone would lower payments by a comparatively smaller –1.12%.
A Familiar Pattern
The CY 2027 experience is not an outlier—it is part of a consistent historical trend. Table 1 shows that the final MA payment rates between 2016 and 2027 averaged 1.26 percentage points higher than what CMS proposed in each year’s Advance Notice.
While many different factors can contribute to the changes between the proposed and final MA payment rates, two structural features of the MA rate-setting process help explain this pattern. First, the effective growth rate is frequently revised upward as more complete Medicare FFS data becomes available. Over the past 11 years, the effective growth rate has been higher in the Rate Announcement than in the Advance Notice in 9 out of 11 years.
Second, CMS often modifies or delays policies that would significantly reduce payments, particularly in response to industry concerns. As highlighted in CY 2027, CMS modified its proposal to exclude unlinked CRRs and decided not to update the risk adjustment model, which pushed the final MA rate higher.
Similar types of industry-friendly modifications have occurred in the past. For instance, in 2023, CMS proposed to fully implement the v28 model in 2024, which would have led to a modest 1.03% payment increase for 2024. In light of comments received, in the finalized CY 2024 Rate Announcement, CMS chose instead to phase-in the model over a three-year period and the final payment increase for CY 2024 landed at 3.32%. These types of adjustments can reflect practical considerations, such as market stability, but can also reflect an especially strong responsiveness to industry feedback, especially when proposals would result in large payment shifts.
Table 1. Year-to-Year Expected Average Change in CMS-Reported MA Revenue and Effective Growth Rate, Calendar Years 2016-2027
| Calendar Year | CMS Reported Effective Growth Rate | CMS Reported Expected Average Change in MA Revenue | |||||
| Effective Growth Rate (Advance Notice) | Effective Growth Rate (Rate Announcement) | Percentage Point Difference Between Advance Notice and Rate Announcement | Advance Notice | Rate Announcement | Percentage Point Difference Between Advance Notice and Rate Announcement | Is the MA Risk Score Trend Included? | |
| 2016 | 1.7 | 4.2 | +2.50 | 1.05 | 3.25 | +2.20 | Yes |
| 2017 | 3 | – | – | 3.55 | Not Reported | – | Yes |
| 2018 | 2.8 | 2.7 | -0.10 | 2.75 | 2.95 | +0.20 | Yes |
| 2019 | 4.35 | 5.28 | +0.93 | 1.84 | 3.4 | +1.56 | No |
| 2020 | 4.59 | 5.62 | +1.03 | 1.59 | 2.53 | +0.94 | No |
| 2021 | 2.99 | 4.07 | +1.08 | 0.93 | 1.66 | +0.73 | No |
| 2022 | 4.55 | 5.59 | +1.04 | 2.82 | 4.08 | +1.26 | No |
| 2023 | 4.75 | 4.88 | +0.13 | 7.98 | 8.5 | +0.52 | Yes |
| 2024 | 2.09 | 2.28 | +0.19 | 1.03 | 3.32 | +2.29 | Yes |
| 2025 | 2.44 | 2.33 | -0.11 | 3.7 | 3.7 | 0.00 | Yes |
| 2026 | 5.93 | 9.04 | +3.11 | 2.23 | 5.06 | +2.83 | No |
| 2027 | 4.97 | 5.33 | +0.36 | 0.09 | 2.48 | +2.39 | No |
| Average | 3.68 | 4.67 | +0.99 | 2.46 | 3.72 | +1.26 | – |
Sources: Data was compiled as reported in the CMS Advance Notice Fact Sheet and CMS Rate Announcement Fact Sheet, as reported by CMS with respect to each calendar year from 2016 to 2027. As noted in the MPI blog entitled, “Apples to Oranges: Including the MA Risk Score Trend in CMS’s Estimates of MA Payments”, CMS has historically been inconsistent in including the MA risk score trend in the “year-to-year percentage change bottom-line table” which can be found in each Advance Notice and Rate Announcement fact sheet.
Implications for Plans, Beneficiaries, and Policymakers
The CY 2027 Rate Announcement presents a mixed picture.
MA plans will receive an approximate $26 billion payment increase in 2027. For MA plans, the higher-than-expected payment increase—particularly when combined with risk score growth—represents a positive development. Payments are projected to be approximately $26 billion higher when accounting for risk trends, providing additional financial flexibility.
At the same time, the 2027 MA payment increase is smaller than those seen in some recent years. If enrollees’ use of services continues to rise, MA plans that are less successful at managing care may face pressure to adjust benefits and cost structures. These adjustments could include higher premiums, increased cost sharing, reduced supplemental benefits, more constrained provider payments, reduced access to care, or selective market exits. MA plans may also need to trim administrative costs and accept lower margins. Nevertheless, the overall MA market has withstood other financially challenging times and yet maintained robust plan choices and supplemental benefit offerings in most areas.
Looking Ahead: A Structural Feature, Not an Exception
The continued pattern of upward revisions raises important questions about the MA rate-setting process. While some increases are driven by updated data, others reflect policy decisions that have historically tended to favor the industry. The CY 2027 Rate Announcement underscores a key reality: upward revisions from the proposed MA payments to the final MA rates are structurally embedded in the MA payment process.
CMS’ decision to delay updating the risk adjustment model highlights a larger issue. While calibrating the v28 model on older 2018 diagnoses and 2019 expenditure data may support short-term stability, it also prolongs reliance on pre-COVID data that may be less reflective of current spending patterns. CMS itself notes that the longer the agency waits to update the v28 model, the larger the year-over-year bottom line repercussions for MA organizations may be. Rather than focusing solely on proposed versus final payment rates, policymakers may want to pay greater attention to how to improve incentives in the MA program. This includes examining how payment policies influence coding intensity, care management, benefit design, and plan participation—and whether those incentives are driving value for beneficiaries and taxpayers. Medicare beneficiaries and taxpayers are best served when MA organizations focus their resources on managing their enrollees’ care more than identifying diagnoses. As CY 2027 demonstrates, the difference between proposed and final rates is only part of the story. A more durable path forward will require focusing not just on payment levels, but on designing policies that promote high-quality, efficient care across the MA program.