Headline numbers were more than favorable for Medicare Advantage (MA) plans after the Centers for Medicare and Medicaid Services (CMS) on Monday released the Calendar Year (CY) 2027 Medicare Advantage (MA) and Part D Rate Announcement and projected a 2.48 percent, or $13 billion, increase in MA payments to plans in 2027.

That number was much higher than CMS’s January proposed MA rate hike of only 0.09 percent or $700 million, and the actual additional money headed to MA plans from the final rule is even more than the top-line number, said one industry analyst.

“The headline number everyone is quoting is ~2.5 percent, but once you layer in risk model adjustments and coding trend assumptions, you’re closer to ~5 percent all-in,” said Jay Gormley, chief investment officer, COO, Advisory, Zimmet Healthcare Services Group.

“That’s a pretty dramatic swing from the near-flat proposal earlier this year and tells you CMS is still very sensitive to plan participation and benefit stability. UnitedHealth Group, Humana, and CVS Health stocks all popped immediately, which is usually a good proxy for who ‘won’ the rule.”

Tricky Times for CMS

From her perspective, Anne Tumlinson, founder and CEO, ATI Advisory, said CMS is trying to walk the line between ensuring that Medicare isn’t overpaying health plans and making sure beneficiaries have access to MA plans.

“For middle- to lower -income Medicare beneficiaries, MA is often the only option for covering gaps in Traditional Medicare. CMS got a record number of comments and talked to the industry, and I think came away believing they needed to moderate the proposal on rates to protect access.”

She said this similar type of thinking applies to the risk adjustment policy – moderating and modulating to find the right balance between pushing the plans and preventing a meltdown.

“I was not surprised. Proposed rates and other policies have been moderated in the final rule in the past,” Tumlinson said.

Risk Adjustment’s Story

Gormley said he sees the continued tightening around risk adjustment as the more interesting piece of the CMS rate announcement, noting with the same analogy as Tumlinson that CMS is very clearly trying to walk a line: keep plans whole on aggregate dollars while chipping away at the mechanics (chart reviews, coding intensity, etc.) that have driven margin expansion.

“Net-net, this continues to reinforce what we’ve been seeing: MA is not going away, but it is becoming a more ‘managed’ product from a margin standpoint, and that has downstream implications for SNFs as plans get more disciplined on utilization,” he said.

C-SNP Growth

Gormley also thinks the CY 2027 MA rule is likely to further accelerate the growth of C-SNPs (Chronic Condition Special Needs Plans) in a somewhat indirect but important way.

“CMS is clearly signaling concern that a growing share of dual-eligibles are being served through C-SNPs and I-SNPs [Institutional Special Needs Plans] rather than more tightly integrated D-SNP [Dual Eligible Special Needs Plans] structures, and has used the rule and accompanying RFI to explore giving states greater oversight or contracting authority in these models,” he said.

At the same time, Gormley said by continuing to streamline requirements and reduce certain administrative and reporting burdens across Medicare Advantage, the rule effectively lowers barriers to entry and expansion for plans targeting high-acuity populations through condition-based designs.

“The net effect is a policy environment that, while rhetorically focused on integration, still creates strong economic and operational incentives for plans to scale C-SNP offerings, particularly as a more flexible, less state-constrained pathway to capture complex, often dual-eligible populations without the full requirements associated with D-SNP integration.”

The CY 2027 MA and Part D Rate Announcement may be viewed at: https://www.cms.gov/files/document/2027-announcement.pdf.

A fact sheet discussing the provisions of the CY 2027 MA and Part D Rate Announcement can be viewed at: https://www.cms.gov/newsroom/fact-sheets/2027-medicare-advantage-part-d-rate-announcement.

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