The 0.09% Problem: What the 2027 Medicare Advantage Rate Proposal Really Means for Providers

By Elena Pak, Credentialing Department, WCH

On February 27, 2026, the Better Medicare Alliance — an insurer-backed Medicare Advantage advocacy coalition — sent a letter to CMS Administrator Mehmet Oz signed by more than 100 organizations, ranging from the Blue Cross Blue Shield Association and America’s Physician Groups to Meals on Wheels America and the NAACP. The breadth of the coalition was deliberate. When a single rate notice forces chiropractors in West Virginia, the U.S. Chamber of Commerce, and national nursing associations onto the same page, something structurally significant is happening in the program. The letter documented that median annual out-of-pocket maximums for MA beneficiaries have risen by nearly $900 in just two years, and that nearly 3 million seniors were forced to find new coverage last year alone after plans exited their markets. These are not abstractions. They are the downstream effects of a funding environment running structurally behind actual costs — and the 2027 rate proposal is set to widen that gap.

Why 0.09% Is Not What It Appears

CMS frames the proposal as a net average year-over-year payment increase of 0.09%, or over $700 million in MA payments to plans. When considering estimated risk score trend driven by coding practices and population changes, the expected average change in payments will be 2.54%. That is the number CMS uses to suggest the proposal is reasonable. The industry’s math tells a different story.

The average increase finalized for 2026 was 7.16%. Analysts had anticipated a rebound year in 2027, expecting a 4% to 6% increase based on prior-year patterns. At 2.54% effective, the gap between revenue and cost is not a rounding error — it is a structural imbalance.

To understand why, it matters to decompose what drives that 2.54% figure. The 0.09% base rate reflects a 5.10% benchmark growth rate driven by FFS Medicare per capita cost growth, partially offset by rebasing adjustments, normalization factor impacts, and risk adjustment changes — including the chart review exclusion discussed below. The additional 2.45% represents projected coding trend, meaning the natural increase in risk scores that plans earn through ongoing patient documentation. Historically, plans have relied on this coding trend to bridge the gap between CMS’s stated rate and actual medical cost inflation.

The problem is that medical costs in 2025–2026 are running well above 2.54% combined. Medicare Part D and MA prescription drug plans saw a 41% increase in per-member per-month gross cost between 2024 and the first half of 2025. Part D utilization increased 38% during that period, while MA drug plan utilization rose 20%. Medical trend across the broader MA book — driven by post-COVID utilization normalization, higher acuity patients, and IRA-driven Part D dynamics — is estimated by actuaries at 6% to 9% for many plan segments. Against that backdrop, a 2.54% effective payment increase is not stability. It is compression.

The Chart Review Decision: A $7.2 Billion Policy Inside a Technical Update

Buried within the Advance Notice is a risk adjustment change with financial implications that dwarf the headline rate number.

CMS proposes to exclude diagnosis information from unlinked Chart Review Records — diagnosis information not associated with a specific beneficiary encounter — from risk score calculation starting in CY 2027. CMS expects the payment impact of this proposal to be greater for MA organizations that use more unlinked Chart Review Records to report risk-adjustment eligible diagnoses. CMS projects that eliminating diagnoses from unlinked chart reviews would reduce payments to plans by $7.2 billion for 2027.

It is critical to understand what this policy is and what it is not. It does not affect prospective in-home assessments conducted by clinicians who also treat the patient, as long as those encounters are linked to a specific service record. It does target retrospective chart reviews — the practice of mining medical records after the fact to identify diagnosis codes not otherwise captured in encounter submissions, specifically where no corresponding encounter with the patient occurred. The distinction matters because these two RA strategies have very different clinical foundations.

Over the past decade, dozens of whistleblower lawsuits, government audits, and investigations have alleged that health plans systematically exaggerate how sick their customers are to pocket higher federal reimbursements. The chart review exclusion is CMS’s most aggressive structural response to that pattern to date. CMS Deputy Administrator Chris Klomp has stated directly: “We do not want risk adjustment to be a source of competitive advantage for health plans.”

For providers, the behavioral consequence of this policy is the pressure it creates at the encounter level. Plans that can no longer supplement their risk scores through unlinked retrospective review will increasingly depend on encounter-based documentation to capture patient complexity accurately. That pressure travels downstream to physician offices, group practices, and hospital-based clinicians who generate the encounter records that feed risk adjustment. Expect more specific documentation requirements in payer contracts, more HCC-targeted coding support programs offered by plans, and more scrutiny of encounter data submission completeness.

A Contested Number: The MedPAC Debate Providers Need to Understand

The coalition letter presents one side of a genuine policy tension. The other side has its own numbers — and both sides have legitimate arguments.

MedPAC estimated that Medicare Advantage will cost the federal government roughly $76 billion more in 2026 than a scenario in which all beneficiaries remained in traditional Medicare — a figure lower than last year’s $84 billion projection, due to the continued phase-in of the V28 risk adjustment model. If continued, the Committee for a Responsible Federal Budget estimates this would translate to $1.2 trillion in overpayments through 2035, with $520 billion coming from the Medicare Hospital Insurance trust fund — a fund projected to exhaust reserves in 2032.

But the industry’s counterargument is not without merit. The Healthcare Leadership Council has documented that MedPAC’s revised methodology, introduced in 2024, quadrupled its “overpayment” estimate from 6% to 22% using the same underlying data — a shift driven by new assumptions about favorable selection and coding intensity, not by changes in the program itself. The HLC argues that MedPAC’s analysis does not account for the value MA delivers beyond FFS coverage, including care coordination, supplemental benefits, and population management.

MedPAC’s own commissioners acknowledged that V28 functions as a “very blunt tool” that penalizes both plans that were upcoding and those that were not — including small, regional insurers covering fewer beneficiaries.

The honest summary is this: MA is probably overpaid relative to FFS on a like-for-like basis, but the magnitude of that overpayment is genuinely contested, and the reforms being implemented to address it are broad instruments applied to a heterogeneous market. Providers whose plans were not engaged in aggressive retrospective coding will nonetheless absorb the consequences of a rate environment shaped by plans that were.

The Political Arithmetic: Why April 6 Is Not the End of the Story

The 2027 rate proposal is not purely a technical exercise. It is happening in a specific political context that providers should factor into their planning.

Administrator Oz — historically a strong supporter of Medicare Advantage — has acknowledged that more needs to be done to curb upcoding, a sharp about-face from the first Trump administration, when MA payers enjoyed lucrative margins and relatively low oversight. President Trump himself has publicly stated that insurers make too much money. At the same time, MA now covers more than half of all Medicare beneficiaries, and the political cost of visible benefit reductions hitting 35 million seniors ahead of the 2026 midterm elections is not trivial.

The advance notice is not the final word. CMS will publish its final Rate Announcement by April 6, 2026. Historically, CMS has revised advance notice rates upward before finalization — in 2025, for example, CMS more than doubled its initial proposal to reach the finalized 5.06% rate. Whether a similar revision occurs in 2027 is genuinely uncertain. The political dynamics around MA upcoding are more hostile to payers than in prior cycles, and the administration appears more committed to the chart review exclusion specifically than to the headline rate number. A partial compromise — modest rate improvement, chart review exclusion retained — is the most plausible scenario, but it is a scenario, not a certainty.

The MA market itself is already absorbing the consequences of years of funding pressure. The loss ratio for MA increased to a high of 89.9% in 2024, marking the first year the industry reported a collective underwriting loss. The percentage of plans with Star Ratings of four stars or higher has fallen from 68% in 2022 to 40% in 2025, with an average rating declining from 4.37 in 2023 to 3.2 for 2026. That Star Rating deterioration is not incidental — plans losing 4-star status lose quality bonus payments and reduced rebate percentages, compressing the margin available to reinvest in network richness and supplemental benefits.

What Providers in MA Networks Should Do Now

Three strategic implications are clear, regardless of how the April 6 final notice resolves.

First, network contraction is not hypothetical — it is underway. The era of unchecked MA expansion appears over, with growth slowing sharply and major carriers — UnitedHealthcare, Humana, and Aetna — having already pulled back from certain markets and tightened benefits in response to margin pressure. Providers in markets where plan exits have concentrated enrollment among fewer contracts should assess their network dependency and renegotiate accordingly before the next bidding cycle.

Second, encounter documentation is now a financial protection mechanism. The exclusion of unlinked chart review diagnoses shifts the burden of risk score accuracy entirely onto the encounter record. Practices that systematically under-document patient complexity — failing to capture relevant HCCs through encounter submissions — are not only leaving risk adjustment revenue uncaptured; they are creating a documentation baseline that payers will use to argue against contract rate adjustments. A clinical documentation integrity audit, conducted now against HCC gap metrics, is a high-value investment for any practice with significant MA volume.

Third, the short-term shock and the long-term correction are different things. The market reaction to the January proposal — share price declines across major MA carriers, dramatic forward guidance revisions — reflects a combination of rate impact and broader utilization pressure that has been building since 2023. The structural correction in MA economics is real and will persist regardless of whether the April final notice provides partial relief. Industry analysts now characterize the core question facing MA organizations not as whether losses are occurring, but whether the losses are fixable or structural. For providers, the same question applies to their MA contracting strategy: is the current reimbursement environment a temporary squeeze or the beginning of a fundamentally different margin regime? The answer shapes whether to deepen MA participation, diversify toward traditional Medicare, or accelerate value-based care alignment that protects revenue regardless of plan-level rate volatility.

The April 6 final notice will tell us whether CMS blinks. What it will not tell us is whether the underlying economics of Medicare Advantage have stabilized. That answer is still being written.

Sources

1. Better Medicare Alliance. Ally Sign-On Letter to CMS Administrator Mehmet Oz. February 27, 2026. bettermedicarealliance.org/wp-content/uploads/2026/03/Ally-Sign-on-Letter-to-Administrator-Oz.pdf
2. CMS. CY 2027 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies. January 26, 2026. cms.gov/files/document/2027-advance-notice.pdf
3. CMS. “CMS Proposes 2027 Medicare Advantage and Part D Payment Policies to Improve Payment Accuracy and Sustainability.” Press Release & Fact Sheet. January 26, 2026. cms.gov/newsroom/fact-sheets/2027-medicare-advantage-part-d-advance-notice
4. Casolo, E. “100+ Organizations Call on CMS to Revise Proposed 2027 MA Rates.” Becker’s Payer Issues. February 27, 2026. beckerspayer.com
5. Pifer Parduhn, R. “CMS Official Defends Flat Medicare Advantage Rate Proposal for 2027.” Healthcare Dive. January 27, 2026. healthcaredive.com
6. Pifer Parduhn, R. “Medicare Advantage Overpayments Will Total $76B This Year: MedPAC.” Healthcare Dive. January 16, 2026. healthcaredive.com
7. Committee for a Responsible Federal Budget. “New Data Suggests MA Overpayments of $1.2 Trillion Over the Next Decade.” January 23, 2026. crfb.org
8. Healthcare Leadership Council. “HLC Appreciates MedPAC Refining MA Cost Estimates, Urges Further Action.” January 21, 2026. hlc.org
9. Crowell & Moring LLP. “CMS Proposes CY 2027 Growth Rate and Changes to Risk Adjustment for Medicare Parts C and D.” January 2026. crowell.com
10. McDermott+ Consulting. “CMS Issues CY 2027 Medicare Advantage and Part D Rate Notice.” January 29, 2026. mcdermottplus.com
11. Maehr, B.; Friedman, J. “Opportunities and Challenges in the MA Market.” InsuranceNewsNet / AM Best / Milliman. March 2026. insurancenewsnet.com (MA loss ratio 89.9% in 2024; Part D utilization +38%; MA drug plan utilization +20%; Star Rating decline 68% → 40% four-star plans.)
12. ATI Advisory. “CMS Releases CY 2027 Medicare Advantage and Part D Advance Notice: Early Signals, Open Questions.” January 28, 2026. atiadvisory.com
13. HealthScape Advisors. “Medicare Advantage 2026: Enrollment Depicts Industry at a Crossroads.” 2026. healthscape.com
14. AJMC. “CMS Proposes Nearly Flat 2027 Medicare Advantage Payment Rates.” January 27, 2026. ajmc.com
15. NPR. “Trump Administration Plans Crackdown on Medicare Advantage Overcharges.” January 29, 2026. npr.org
16. Fierce Healthcare. “Medicare Advantage Enrollment Hits 35.5M After Another Year of Slow Growth.” February 2026. fiercehealthcare.com
17. Labor First/Segal. “2027 Medicare Advantage & Part D Advance Notice: Key Takeaways & Implications.” February 2026. laborfirst.com (Breakdown of 2.54% effective rate; normalization factor mechanics; $7.2B chart review projection.)
18. MedPAC. Report to Congress: Medicare Payment Policy. March 2026 Chapter 11. medpac.gov