The Centers for Medicare and Medicaid Services recently announced that payments from the government to Medicare Advantage plans will increase by 5.06%, or $25 billion, from 2025 to 2026, making many payer advocates happy.
This is a significant difference from the 2.23% increase proposed by the Biden administration in January. The increase is mainly due to the rise in the effective growth rate, which is 9.04%, compared to the estimate of 5.93% in the advance notice.
“Each year for the Rate Announcement, CMS updates the growth rates to be based on the most current estimate of per capita costs, based on the available historical program experience and projected trend assumptions at that time,” the agency said in the fact sheet. “The growth rates change between proposed and final as CMS incorporates updated data and assumptions. This year, the change in growth rates from the Advance Notice to the Rate Announcement is due primarily to the incorporation of additional [Medicare Fee-for-Service] payment data, including through the fourth quarter of 2024.”
The Better Medicare Alliance, an advocacy organization for Medicare Advantage, came out in support of the payment rate, saying that it will provide some relief after a series of cuts.
“After two years of Medicare Advantage cuts, this payment rate will provide stability for millions of beneficiaries who have faced plan closures, higher costs, and reduced benefits,” said Mary Beth Donahue, president and CEO of the Better Medicare Alliance, in a statement. “Today, more than half of Medicare beneficiaries choose Medicare Advantage for better care and better health outcomes. Protecting this program has never been more important. We look forward to continuing to work with the Trump Administration, CMS Administrator Oz, and Congress to advance policies that will strengthen Medicare Advantage for seniors and taxpayers.”
The Alliance of Community Health Plans (ACHP), which represents local and nonprofit health plans, also applauded the rate notice, as well as CMS’ decision to finish the three-year phase-in of the updated MA risk adjustment model, which is a way for CMS to pay MA plans more accurately based on how healthy and sick their members are.
“The Alliance of Community Health Plans commends the Trump Administration for finalizing policies in the 2026 Medicare Advantage and Part D Rate Notice that reflect higher care delivery costs and for taking another step toward reining in aggressive risk adjustment to boost competition,” said Ceci Connolly, ACHP president and CEO, in a statement. “ACHP has long supported the new MA risk adjustment model and is pleased that CMS will finally complete the transition. Seniors deserve affordable, evidence-based care with physicians focused on delivering that care, rather than digging for diagnoses.”
Not everyone was thrilled by this payment increase for Medicare Advantage plans, however. This includes the American Medical Association, which fought to stop a 2.8% cut in Medicare payments for physicians this year. Congress failed to prevent this cut.
“Increasing pay to insurance companies — which are enjoying record profits — while cutting pay for physicians who are struggling to keep our practices afloat suggests a case of misaligned priorities. Physicians are the very foundation of health care. Regardless how flush insurers are, patient access will suffer if physicians close their practices,” said AMA President Bruce A. Scott, M.D., in an announcement on Thursday.
The organization, along with the Medicare Payment Advisory Commission, is also calling on Congress to tie Medicare payment updates for physician practices to the growth in the cost of providing care.
The payment rate came after Dr. Mehmet Oz was confirmed by the Senate last week as CMS administrator. Oz has been a major advocate of the Medicare Advantage program in the past, drawing scrutiny from some democrats who questioned whether he’d be able to effectively regulate MA plans, which have faced criticism for overpayments and inappropriate use of prior authorization.
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