Medicare Advantage Plans Set to Receive a 4.3% Pay Increase in 2026

Overview of the Proposed 2026 Advance Notice 

The Centers for Medicare and Medicaid Services (CMS) announced a proposed 4.3% increase in payment rates for Medicare Advantage (MA) plans for 2026. This hike, detailed in the Advance Notice released on Friday, could result in a net increase of over $21 billion to MA plans. If finalized, total federal payments to these plans in 2026 are projected to reach $590.9 billion, as per the 2024 Trustees Report. Over the next decade, CMS anticipates spending $9.2 trillion on MA payments, of which $1.3 trillion will go toward supplemental benefits and premium buy-downs. 

Key Metrics Behind the Payment Increase 

The 2026 Advance Notice outlines a payment rate based on several components: 

• Growth Rate: A 5.93% increase driven by Medicare fee-for-service (FFS) per capita cost growth, inclusive of indirect and direct medical education costs. 

• Risk Adjustment and Normalization: A -3.01% adjustment for revisions in the risk model and FFS normalization. 

• Star Ratings Impact: A -69% change reflecting Quality Bonus Payments. 

• Risk Score Trend: An MA risk score trend of 2.1%. 

Despite these technical changes, CMS expects premiums and benefits for MA consumers to remain stable, continuing the trend from 2024 and 2025. CMS is soliciting comments on the proposal until February 10, with the final rates to be announced by April 7. 

Medicare Advantage: A Growing Cornerstone of U.S. Healthcare 

Medicare Advantage, an alternative to traditional Medicare, offers comprehensive coverage through private insurers, often including additional benefits like dental, vision, and wellness programs. Enrollment in MA plans has surged in recent years, driven by consumer preference for convenience, coordinated care, and lower out-of-pocket costs. The proposed 4.3% hike underscores the federal government’s continued commitment to supporting this rapidly growing sector. 

Implications for Stakeholders 

For Medicare Advantage Providers 

The proposed pay increase provides financial stability and an opportunity for MA providers to enhance services. With over $21 billion in additional funding, providers can invest in better care coordination, expand supplemental benefits, and potentially lower premiums for enrollees. MA plans have become a crucial part of the healthcare landscape, making this increase a welcome development for insurers and providers navigating the complex regulatory environment. 

For Patients 

Stable premiums and robust benefits are critical for Medicare beneficiaries, many of whom rely on these plans for their comprehensive healthcare needs. The continuation of MA rebates averaging over $2,400 annually per enrollee further supports affordability. As the Inflation Reduction Act continues to reshape Medicare Part D, beneficiaries can also anticipate improved prescription drug benefits, including a lower out-of-pocket threshold of $2,100 for 2026. 

For Physicians 

The 4.3% increase in MA payments contrasts sharply with the 2.8% decrease in Medicare payments to physicians. This disparity has drawn criticism from medical professionals, who face rising operational costs and financial strain. Dr. Bruce A. Scott, president of the American Medical Association, highlighted the inequity, stating, “It’s unbelievable they’re giving insurance companies that had record profits an increase while cutting payments to physician practices that are struggling to survive.” The continued erosion of physician reimbursements risks exacerbating provider shortages and could lead to practice closures, particularly in underserved areas. 

Broader Trends in Medicare Funding 

The proposed increase aligns with CMS’s ongoing efforts to modernize and stabilize Medicare Advantage and Part D programs. Key trends include: 

• Risk Adjustment Model Improvements: CMS is completing a three-year phase-in of updates to the MA risk adjustment model, ensuring more accurate cost predictions based on recent FFS data and clinician input. 

• Focus on Quality: Adjustments to star ratings reflect CMS’s emphasis on incentivizing high-quality care through Quality Bonus Payments. 

• Medicare Part D Redesign: The Inflation Reduction Act’s impact on prescription drug costs and benefits continues, with significant enhancements slated for 2026. 

Challenges and Criticisms 

While the proposed pay hike benefits MA providers, it raises questions about healthcare equity. Critics argue that prioritizing MA plans over traditional Medicare and physician payments could deepen disparities. The financial boost to private insurers contrasts with the ongoing financial struggles faced by many healthcare providers, particularly in rural and underserved communities. 

Moreover, the growth in MA enrollment and federal spending raises concerns about long-term sustainability. With $9.2 trillion in projected MA payments over the next decade, policymakers must balance program expansion with fiscal responsibility. 

Industry Reactions 

CMS Administrator Chiquita Brooks-LaSure emphasized the agency’s commitment to affordability and quality, stating, “Today’s Advance Notice continues CMS’s efforts to provide access to affordable, high-quality care in Medicare Advantage while being a good steward of taxpayer dollars.” 

In contrast, physician advocacy groups have expressed frustration. The AMA’s Dr. Scott called on Congress to prioritize physician payment reform, warning of the potential consequences of continued payment cuts. “This contrast highlights the urgent need for Congress to link payment to physician practices to the cost of providing care,” he said. 

As CMS finalizes the 2026 payment rates, stakeholders should closely monitor developments and provide feedback during the comment period. The proposal’s impact on MA plans, traditional Medicare, and the broader healthcare ecosystem will shape the future of U.S. healthcare policy. Ensuring that financial incentives align with quality and equity goals remains a critical challenge. 

The proposed 4.3% pay hike for Medicare Advantage plans in 2026 reflects CMS’s continued investment in this growing sector. While the increase offers opportunities for improved patient care and plan innovation, the stark contrast with physician payment cuts highlights the need for a more balanced approach to healthcare funding. As the industry grapples with these changes, collaboration between policymakers, providers, and insurers will be essential to achieving sustainable and equitable healthcare outcomes.