Medicare Advantage Payments to Insurers Will Rise More Than Expected

The 5.06 percent increase for 2026 is more than double the previously announced proposal in January under the Biden administration.

A certified medical assistant applies a Band-Aid after administering a vaccine at Harbor-UCLA Medical Center in Torrance, Calif., on Jan. 21, 2021. Mario Tama/Getty Images

The Centers for Medicare & Medicaid Services (CMS) announced on April 7 that it will increase Medicare Advantage payments to private insurers by 5.06 percent in 2026—more than twice the rate proposed earlier this year.

The CMS finalized the payment policy updates as part of its annual Rate Announcement for the Medicare Advantage and Part D programs.

The finalized growth rate reflects updated spending data and a continued effort to maintain access to affordable, high-quality care for Medicare beneficiaries, CMS said in the announcement.

This marks a significant jump from the 2.23 percent increase outlined in the agency’s advance notice released in January under the Biden administration.

The change stems largely from a revised effective growth rate, which CMS said is now 9.04 percent—up from the earlier estimate of 5.93 percent. The revision was made after incorporating additional data on Medicare fee-for-service per capita expenditures through the fourth quarter of 2024.

CMS is continuing a three-year update to the formula it uses to estimate how much it should pay Medicare Advantage plans based on patients’ expected health needs. Known as risk adjustment, the method helps predict care needs and costs based on individuals’ health conditions.

According to CMS, risk adjustment is designed to ensure that providers are paid fairly for treating patients with different health needs.

The system “evens the playing field, recognizing that not all patients are the same, so that providers are able to treat patients with different health care needs and not just healthier, less costly patients,” CMS said. The approach also helps prevent waste, fraud, and abuse, the agency said.

The higher growth rate is set in statute and reflects the projected change in per capita Medicare costs. The 2026 update completes a three-year phase-in of a technical adjustment related to excluding medical education costs for Medicare Advantage enrollees.

The finalized policy will benefit major insurers that manage Medicare Advantage plans, such as UnitedHealth Group, Humana, CVS Health, and Elevance Health.

Stocks for these companies surged in after-hours trading on April 7 following the announcement, with Humana jumping 11.5 percent and CVS Health gaining 6.7 percent, according to Reuters.

CMS also issued final instructions for implementing the 2026 Medicare Part D redesign, which reflects changes mandated by the Inflation Reduction Act.

Beginning in 2026, the Part D drug benefit will include a $2,100 annual cap on out-of-pocket costs, continued zero cost-sharing for vaccines and catastrophic coverage, and a 10 percent government subsidy on selected drugs under Medicare’s Drug Price Negotiation Program.

In response to the rate notice, Mike Tuffin, president and CEO of America’s Health Insurance Plans (AHIP), released a statement:

“Medicare Advantage is vital to the health and wellbeing of 34 million Americans, who count on the program for better care and protection from steadily rising medical costs. As health plans review the new policies released in the last two days, they will continue to focus on helping seniors stay healthy, closing gaps in care and supporting those with chronic illness,” Tuffin said.