Medicare Advantage & Part D Rate Setting
Overview
The Medicare Advantage (MA) program covers over 33 million beneficiaries — more than half of all Medicare enrollees — through private insurance plans that receive capitated payments from CMS. Each year, CMS issues an Advance Notice (typically in January/February) followed by a Rate Announcement (typically in April) that set MA benchmark rates, risk adjustment methodology, Star Rating bonuses, and coding intensity adjustments for the coming contract year. These two documents, combined with the annual MA/Part D Final Rule, determine the financial environment for every MA plan in the country.
Total projected federal MA spending reached $590.9 billion for CY 2026, with $9.2 trillion projected over the next decade.
MA Payment Growth Trends (CY 2023-2026)
| Metric | CY 2023 | CY 2024 | CY 2025 | CY 2026 |
|---|
| Effective Growth Rate | 4.88% | 2.28% | 2.33% | 9.04% |
| Star Ratings Impact | +0.54% | -1.24% | -0.11% | -0.69% |
| Risk Model / Normalization | -0.81% | -2.16% | -2.45% | -3.01% |
| MA Risk Score Trend | +3.50% | +4.44% | +3.86% | +2.10% |
| Expected Avg Change in Revenue | +8.50% | +3.32% | +3.70% | +5.06% |
| Year | Dollar Increase YoY | Projected Total MA Payments |
|---|
| CY 2024 | ~$13.8B | ~$500B |
| CY 2025 | ~$16B | ~$550B |
| CY 2026 | ~$25B+ | ~$590.9B |
The CY 2023 rate announcement was the most generous in recent history (+8.50%), driven by strong FFS growth rates. CY 2024 compressed sharply (+3.32%), alarming the industry. CY 2025 stabilized at +3.70%, while CY 2026 surged to +5.06% in the Rate Announcement (well above the +4.33% Advance Notice) due to higher-than-expected Q4 2024 FFS data.
Risk Adjustment Model Transition (3-Year Phase-In)
| Year | 2020 Model (Old) | 2024 Model (New) | Medical Education Phase-In |
|---|
| CY 2024 | 67% | 33% | 33% |
| CY 2025 | 33% | 67% | 52% |
| CY 2026 | 0% | 100% | 100% |
The 3-year phase-in of the 2024 CMS-HCC model is the most significant MA risk adjustment overhaul in years:
- ICD-10 reclassification replacing ICD-9-based mapping
- Payment HCCs: 86 (old) → 115 (new)
- Diagnosis codes mapped to payment: 9,797 (old) → 7,770 (new) — approximately 2,000 codes removed
- MA risk score trend decline: from ~5.0% (old model) to 2.10% (new model, fully phased)
- Revenue drag: -2% to -3% annually from model revision and normalization
The coding pattern adjustment remained at the 5.9% statutory minimum throughout, with no additional adjustment imposed despite ongoing CMS review.
Star Ratings Key Changes
| Year | Key Change | Payment Impact |
|---|
| CY 2023 | COVID-era adjustments codified | +0.54% |
| CY 2024 | COVID adjustments removed; ratings dropped | -1.24% |
| CY 2025 | D-SNP-specific Star Rating pathway | -0.11% |
| CY 2026 | HEI reward finalized for 2027 Stars | -0.69% |
The removal of COVID-19 extreme/uncontrollable circumstances adjustments caused average Star Ratings to drop significantly, creating a -1.24% payment impact in CY 2024. CMS introduced the Health Equity Index (HEI) reward starting with 2027 Stars, rewarding plans that serve diverse and underserved populations.
Prior Authorization Reforms (CY 2024-2026)
| Year | Key Reform |
|---|
| CY 2024 | Clinical criteria must align with Traditional Medicare coverage rules; 90-day transition period for switching enrollees; annual UM Committee review |
| CY 2025 | Annual health equity analysis of UM policies required; UM committee must include health equity expert |
| CY 2026 | Plans cannot reopen previously approved inpatient admissions; CMS did NOT finalize proposed AI guardrails |
D-SNP Integration Trajectory
| Year | Key D-SNP Policy |
|---|
| CY 2023 | 4.1M dually eligible in D-SNPs; enrollee advisory committees; SDOH screening in HRAs; MOOP reform (saves states $2B/10yr) |
| CY 2025 | Enrollment limited to affiliated Medicaid MCO members; look-alike threshold lowered (80% → 70% → 60%); PPO cost-sharing limits |
| CY 2026 | Integrated member ID cards and integrated HRAs required by 2027 |
Inflation Reduction Act / Part D Transformation
| Year | Key IRA Change |
|---|
| CY 2024 | No cost-sharing in catastrophic phase; LIS expanded to 150% FPL (~300K additional beneficiaries); $35/month insulin cap |
| CY 2025 | $2,000 annual out-of-pocket cap; coverage gap eliminated; Medicare Prescription Payment Plan (monthly installment option) |
| CY 2026 | OOP cap adjusted to $2,100; Drug Price Negotiation Program (10 drugs selected); manufacturer discount program |
Marketing and Enrollment Reform
| Year | Key Reform |
|---|
| CY 2024 | Prohibited generic MA ads without plan names; prohibited misleading Medicare logos; 48-hour cooling-off period |
| CY 2025 | Fixed national agent/broker compensation; prohibited volume-based bonuses; one-to-one consent for beneficiary data sharing |
| CY 2026 | Non-allowable SSBCI list (prohibiting non-health items as supplemental benefits) |
Network Adequacy Expansion
| Year | Key Change |
|---|
| CY 2024 | Added Clinical Psychologists and LCSWs as tracked specialties; 10% telehealth credit for behavioral health |
| CY 2025 | Added Outpatient Behavioral Health as facility-specialty category (MFTs, MHCs, OTPs, CMHCs); NP/PA/CNS criteria (20+ behavioral health patients) |