CMS Proposes to Reduce Medicare Advantage Overpayment, Plans Still Profitable

This week, Medicare Rights submitted comments in response to the 2027 Advance Notice from the Centers for Medicare & Medicaid Services (CMS). The Advance Notice is an annual document outlining how CMS plans to calculate some Medicare Advantage (MA) payments for the following year, including how the agency will calculate risk scores—an important aspect of managed care.

Rate Increase in the Advance Notice

Last year, CMS initially proposed a 4.33% boost for MA. Under industry pressure to apply an even higher increase, the agency ultimately hiked the MA payment rate by an additional 2.83% for an estimated total of $25 billion, thrilling major insurers.

This year, CMS is again proposing a modest 0.09% MA payment increase. Plans have responded with dire predictions about loss of benefits and rising costs for enrollees.

Recent KFF research shows that MA insurers remain extremely profitable.

But recent KFF research shows that MA insurers remain extremely profitable. And the Medicare Payment Advisory Commission (MedPAC)—an independent congressional advisory agency—notes that plan payments are worsening Part B premium rates for beneficiaries—driving costs up by an estimated 7.7% or $15.60 per person per month in 2026, an astonishing $13 billion per year. This increase is borne by all Medicare beneficiaries, and it is in addition to what MA enrollees may pay their plan directly.

Despite these facts, it is unclear whether the agency will hold fast or will repeat prior year patterns.

Curbing Some Iffy Plan Practices

As we flagged in a previous article, this year’s Advance Notice included the agency’s intention to curb how plans can use one practice—unlinked chart reviews—to inflate MA payment.

Importantly, MA plan payments do not depend on how much health care enrollees use. Instead, they are based on the health care enrollees are expected to use via a payment type called “capitation,” meaning per person (or “per head”). Under capitation, plans get a fixed amount of money per month to provide the full range of health care the individual needs. But capitation means that plans profit when people use fewer services, incentivizing them to keep enrollees from accessing care.

Defining “Risk Adjustment”

Risk adjustment determines how much plans are paid per person to account for expected costs based on the health of their enrollees. Younger and healthier enrollees are expected to be less expensive and to use fewer services. Older enrollees and those in worse health are expected to use more services. Plans get more money to cover those who are expected to cost more even if they do not actually cost more.

This means plans can access higher payments by manipulating CMS’s expectations. Some plans use “upcoding” to report that their enrollees will likely be very expensive and may document diagnoses that are not supported by the medical record.

Such upcoding can include chart reviews. Under this practice, plans comb through medical records to spot diagnoses the provider did not already document, some of which never led to services or treatment.

CMS proposes excluding diagnoses collected from chart reviews that are not documented by actual health care service records.

In the Advance Notice, CMS proposes to no longer consider “unlinked” chart reviews when calculating payments. This would mean excluding diagnoses collected from chart reviews that are not documented by actual health care service records. This is an important step towards more rational MA payment, and we supported it in our comments.

No Bump Up in Coding Adjustment

We are disappointed that CMS is proposing to apply the statutory minimum “coding pattern difference adjustment” in 2027, rather than a higher and more effective rate. Unchanged since 2018, this minimum amount is not keeping pace with coding intensity or the resulting excess plan payments. 

It is a potentially effective tool to correct plan payment abuses but, as in past years, CMS is doing the bare minimum. Our comments urged CMS to apply a more appropriate adjustment and otherwise do more to account for plan behaviors.

Reining in Overpayment

The proposals in the Advance Notice are not yet final but underscore the importance of reining in MA overpayment. We appreciate the policies that would advance this goal, and our comments reflect our continuing efforts to improve payment accuracy, insurer accountability, and access to care.

Further Reading

Read the Advance Notice and our comments.

Read more about how plans are paid and the risk of MA overpayment.

Read more about how risk adjustment works.