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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello and welcome to Health Affairs This Week. I'm your host Jeff Beyers. We are recording on 04/07/2026. That's right. It's time for an emergency pod to discuss the Medicare Advantage payment final rule for plan year 2027.
Jeff Byers:Today on the pod to discuss that, have David Meyers from Brown University. David is also a panelist for our upcoming insider event on April 20. That event is titled The Evolution of Medicare Advantage and the Market Implications. Other speakers include Grace McIlby and Sachin Jain. David, welcome to the program.
David Meyers:Yeah. Thank you so much for having me. Always happy to nerd out about techie Medicare Advantage rate announcements.
Jeff Byers:Well, I'm glad you're here so that I can actually learn about techie rate announcements. So we'll go into Medicare Advantage and the market more for our April 20 event, but today, let's discuss the new ruling. So essentially, like the insurance lobby got its wish, right, with a payment bump. Is that is that right?
David Meyers:Yes. And so what comes out in this rate announcement ultimately is something that looks really beneficial for the insurance companies compared to what was originally signaled in the advance notice that came out a couple months ago. And so this is definitely something that the insurers were hoping for. I think that that's been demonstrated in how we're seeing some of their stocks trend on the market when the markets opened up this morning.
Jeff Byers:Yeah. So CMS announced on Monday, I can't remember if it was after close of business or not, but it was cutting it pretty close, a 2.48% payment increase for Medicare Advantage plans in 2027. This was above the proposed point zero zero nine payment bump. So this will increase an estimated $13,000,000,000 in Medicare Advantage payments rates according to the CMS press releases. David, just general thoughts or hypotheses or reactions from this.
David Meyers:This rate announcement is one of the most important events in the regulatory calendar for Medicare Advantage plans. It's where the payment rates are gonna be set for the following year. And there are two big components that go into it. There's this effective growth rate, which is determined by the actuaries based on trends and traditional Medicare spending. As traditional Medicare spending goes up, that leads to more payments for plans.
David Meyers:But then the rate announcement is also where the administration can make changes to things like the risk adjustment system and the HCC scores. And when the original advance notice came out, CMS had proposed having basically a flat increase in payment for plans. There was, some growth in the effective growth rate, as as sort of payment is going up, nationally in traditional Medicare, but CMS was basically balancing that out by making a couple changes to the risk adjustment model that we can talk about. And I think that it seems like that maybe spooked the market too much and CMS has decided to back off of making some of those big changes, and ended up with this rate announcement that's much more favorable to the plans. And I think importantly, it's 2.48% is what they've calculated at the end of this, but CMS also assumes that risk scores are gonna grow by an additional 2.5%.
David Meyers:So really, it's about a 5% boost in payments of plans, next year, which amounts to to billions in additional spending.
Jeff Byers:Gotcha. And we'll get into that risk adjustment in a little bit. In the press releases or in the press materials, Chris Klomp said that in this announcement, they were looking to balance near term program stability with long term program sustainability, which sounds like it was written by someone with a marketing degree or a communications degree, but what do you take by this? The short term versus the long term of the program sustainability over time.
David Meyers:Yeah. And I think it's an important balance that CMS does need to try and strike in some ways. But I think it's interesting sort of the side that they ended up falling on when it comes to sort of putting out this rule this year. We know from research that that many in the academic community have done, that folks like MedPAC, that other sort of congressional groups have sort of done, that there's really big payment challenges in the MA program. And then it's thought that MA plans are paid anywhere from five to 20% more, than they should be relative to what payments look like in in traditional Medicare.
David Meyers:And so there's a lot of money on the line here, especially when it comes to things like the risk adjustment model. And so there's a lot of opportunity that if the program is going to be sustainable in the long run, if Medicare is going to be sustainable overall, not just Medicare Advantage, if traditional Medicare is going to stay sustainable, there needs to be actions that are taken by CMS to rein in that spending. And the administration up till now has expressed a lot of interest in doing that. But I think the administration is also facing this fear that Medicare Advantage is operated by private insurance plans. And they're really worried that if they cut back on the rates too much, then maybe private insurance plans will pull out of the market and and won't wanna choose plans.
David Meyers:And they decided to sort of come down on the plan side of the equation this year rather than sort of the long term savings goal. But I think they left a lot of potential savings on the table that might not have created as much disruption to the plan market as, the plans, of course, want everybody to think.
Jeff Byers:Well, moving into that risk adjustment model. So in the final rule, there is a delay of a risk adjusted model that builds upon version 28. Is that right?
David Meyers:Yeah. So over the past few years, v 28 was a really big shift in the way the HCC score, worked. It's actually, like, technically not a huge shift, but it led to big sort of payment rebalancing across some of the plans, and certain plans were were hit pretty hard by it. And in v 28, they changed the years that the risk model was being trained on and they removed some diagnosis codes or they flattened some diagnosis codes that, were sort of widely agreed upon were being used to sort of lead to differential coding intensity. So what CMS originally planned to do in their 2027, in the advanced notice for this rule is they proposed to change the years that the risk model was being trained from, 2018 and 2019 to 2023 and 2024.
David Meyers:And it's really important to change that every few years because as more and more coding intensity goes up in the program, as we know, it's been increasing over time, there are more and more diagnosis codes that are being captured on records. And if you don't retrain the model, it's not going to be as accurate in actually predicting future costs if a lot of those diagnosis codes that end up going into these model coefficients are sort of inflated. And so the original plan was to build on V28 and calculate this based on more recent data. But because there's so many, trends and sort of increased coding intensity in the program, when you retrain the model on more recent years, it leads to a payment decrease to plans because, there are more diagnosis codes than there should be, and this sort of decreases the weights on those codes.
Jeff Byers:Yeah. If I'm an insurer, that's bad.
David Meyers:Yes. That's bad. But like as an insurer, you want each code to potentially have more weight because if you get somebody who has that code, you get paid more for for those. And and it needs to sort of balance out. If more people have codes, then each of the weights on those individual codes are gonna go down, which leads to potentially less payments to the insurer.
David Meyers:And so CMS proposed to do this using more recent years of data, which is more accurate and sort of has better model performance, but it leads to sort of these payment decreases to plans.
Jeff Byers:Okay. So in the final rule, they decided not to move forward with that and they're still using 2018 and 2019 data. Is that what I'm hearing?
David Meyers:Yes. Yeah. So they're still using 2018 and 2019 data to train the model, and they've backed away from retraining it. And that leads to sort of the biggest difference in what plans are being paid between the advanced notice and what they're actually finally getting paid in in sort of this rate announcement.
Jeff Byers:Anything else on that? That seems pretty important. So we can we can hang out here.
David Meyers:No. I I mean, I think that that's probably the biggest shift here, and I think CMS has ample grounding and evidence and reason to retrain the model. There there isn't actually that much of a justification not to retrain the model. But if you look at CMS's responses to sort of the comments, where people agreed on sort of retraining the model, their main response for why they're deciding to sort of abandon that approach is to promote market stability. And that's what they've sort of stated as their goal is.
David Meyers:And so even though it might be the valid sort of next step to produce a more valid risk adjustment model, they've decided to kind of ignore that to sort of give in to sort of the planned demands around this.
Jeff Byers:And there was another change or, kind of a bigger picture aspect to this rule regarding patient chart review policies. Is that right?
David Meyers:In the advance notice, CMS proposed to remove unlinked chart reviews from the calculation of risk scores. So chart reviews are records that can get submitted in Medicare Advantage data, that are submitted by insurance companies to update diagnosis codes that are included on records. And these can be linked to specific visits with providers that sort of change the diagnosis codes on those provider records, or they can be unlinked, which means basically they're floating in the data, tied to a specific service, and they add more diagnosis codes to beneficiary, records, which increase the risk scores. So what CMS proposed to do, in the advanced notice was to eliminate the inclusion of diagnosis codes that were only captured on unlinked chart reviews and only keep diagnosis codes that were added from linked chart reviews among other sort of sources of diagnoses in these files. And so in the final rate announcement, they've largely kept that policy change intact.
David Meyers:They are still, for the most part, removing diagnosis codes that are included from these unlinked claims with the exception of when a beneficiary switches into a plan for the first time, they're allowing those unlinked chart reviews to still contribute to their risk scores. And so we wrote about this in our forefront piece, that came out a couple weeks ago that this is a signal of the right direction. There's a lot of evidence from OIG, from research, some that we've done that finds that these chart reviews often capture diagnoses that don't seem to be really related to care that patients are actually receiving. And so it's a step in the right direction to remove some of these chart based diagnoses, and removing the unlinked chart reviews are also a step in the right direction. But I think CMS actually has the grounds to go a lot further here because there's lot of evidence that the linked chart reviews are also potentially adding diagnosis codes that aren't relevant to patient care.
David Meyers:And so while they've kept that rule intact, it is kind of, negated by the fact that they're backing down on their, shift to this sort of retraining the risk adjustment model using more recent data. I I think the other limitation with these unlinked chart reviews is that the plans are gonna figure out ways to get all these chart reviews linked pretty quickly. And so I think we can anticipate that there's gonna be a very little impact from from this move. And this, risk model revision and normalization is sort of more consequential, and that's where CMS really backed down.
Jeff Byers:So your Forefront article, is titled assessing recent regulatory action on Medicare Advantage, and we'll put a link in the show notes for listeners if they wanna read it. This was published two weeks ago, so before the final rule, which there were some changes. Do you have any changes in analyses or reactions that you published on Forefront based on the changes in the final rule?
David Meyers:Yeah, so I think what we talked about in that Forefront piece and what we had been really paying close attention to is that this administration has been very vocal in how they want to hold plans to account and to cut back on sort of fraud, waste, and abuse in sort of Medicare Advantage programs to improve sustainability. And from the original advance notice, moving to this new risk adjustment model that trained on the more recent years of data, removing the unlinked chart reviews, these seem to be meaningful steps in a direction to potentially cut back on overpayments that we think are happening in this program. But it does seem like the the administration has backed down from from some of that goal and is not maybe following through on some of the threats that they were making to industry. And, so in some ways, their rhetoric has been really strong on this, but it doesn't seem like in reality they're actually holding plans to account in the same way that they sort of said that they would, before they came out with this, final rate notice.
Jeff Byers:Yeah, do you think there'll be any, I don't wanna say comeuppance, but any change to like back up that rhetoric even more? I know you can't predict the future of this, but like, are there any other levers to pull?
David Meyers:So there are a lot of levers that CMS can potentially pull and pull and that the administration can pull when it comes to auditing plans, when it comes to looking at audits of the risk scores. And it does seem like the administration is committed to ramping a lot of these efforts up. I think though all of those efforts tend to matter less than this overall rate announcement and and sort of what's being put forward as a sort of value in how these payments are being calculated. And so I I think that there is a lot more the administration can do, but this is one of the clearest and most tangible ways that the administration can tackle some of these issues, and they've decided not to in this this year.
Jeff Byers:Well, David Meyers, thanks again for joining us today on Health Affairs This Week. Is there anything that we haven't covered that you wanna make sure listeners are aware of when it comes to this final rate?
David Meyers:Yeah. I mean, I think one other thing that's always important to point out is that CMS actually has even more tools at their disposal in this rate notice that they choose not to use. So there is this thing called the MA coding pattern adjustment that has a statutory minimum adjustment where risk scores are deflated by 5.9%, and that's the minimum that's set out by congress that CMS has to deflate these risk scores by. And CMS has never chosen to go above the statutory minimum, whereas there's a lot of evidence from med pack, from the research community that finds that there is much more than a 5.9% coding inflation in the MA program. And so that's another tool that CMS is electing not to use.
David Meyers:And in fairness to this administration, it's something that no administration since they've had that authority has ever chosen to go forward and use. And so this has been true for many years at this point. So there are ways to to get this under control potentially that are being used to full sort of statutory authority.
Jeff Byers:Yeah. Well, I I mean, I think we've already mentioned it, but I'll just throw a Hail Mary question. Like, what's at stake when it comes to all these payment changes? Like, if we're just continuing on the same pathway forward, I don't want to say what's bad or what's good because that's not the right framing that I'm trying to get at, but what are the trade offs that are being made with these decisions?
David Meyers:Yeah, so I think Medicare Advantage provides a lot of value to a lot of members. It has these supplemental benefits that are useful for beneficiaries. It has these out of pocket, payment caps that are useful for beneficiaries. And so, there could be some argument for wanting to sort of make sure that this program is funded. The problem though is there is a massive amount of additional payment that is going to Medicare Advantage plans that is potentially at the expense of anything else the government wants to be spending money on.
David Meyers:And that includes traditional Medicare. That includes other services that that the government can provide. And and so there are trade offs here with how much additional money is being spent towards these these, plans. And they are delivering some benefit, but it's not clear that they're delivering necessarily the benefit that is in line with the tens of billions of dollars that research and med pack finds plans are potentially being overpaid. And so, you know, that money could be used to support other goals or to help make the traditional Medicare benefit more generous, but it's not being used in that way because it's going to these insurers, instead of going to beneficiaries.
Jeff Byers:David Meyers, anything else that you have on the the docket that you think listeners should be aware of, whether, you know, the April 20 event that you'll be doing for Health Affairs Insider or anything else?
David Meyers:Yeah. I mean, I think it's an interesting time to see what's going to happen in the Medicare Advantage market moving forward. This rate announcement was, say, favorable towards plans. V 28 plans caused a lot of challenges for them. And I I think we're seeing as Medicare Advantage has taken over and represents more than half of the Medicare program, we might continue to see other shifts in what network design looks like, how the star ratings are working, which CMS has also made some recent changes at, not in this rule, but a couple of weeks ago, in a different final rule that came out.
David Meyers:And so there are a lot of other moving pieces in this program that'll be important to understand, as it continues to move forward and so that we understand sort of the sustainability of the Medicare program overall.
Jeff Byers:Yeah. That sounds like a great promotion for April 20 event with, you, Grace McElbee, and Sachin Jane. Insiders can join that. David Meyers, thanks again for joining us today on Health Affairs This Week. If you, the listener, enjoyed this episode, send it to the gambler in your life.
Jeff Byers:We will see you Friday.