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January 29, 2026 – Earlier this week, the Centers for Medicare & Medicaid Services (CMS) released the Contract Year (CY) 2027 Medicare Advantage (MA) and Part D Advance Rate Notice. As previewed in last week’s Regs & Eggs blog post, we had expected the advance notice to be released soon. The annual notice establishes payment rates for MA and Medicare Part D plans for the next year. CMS also issued a proposed rule in November 2025 that includes policy and technical changes for MA and Part D plans for CY 2027. MA and Part D plans will use information gleaned from the advance notice and the proposed rule to submit their bids for CY 2027, which are due on June 1, 2026. Comments on the advance notice are due on February 25, 2026, and CMS will issue a final notice in early April 2026. CMS will also likely finalize the rule around April as well. My colleague Lynn Nonnemaker helped me dig into the MA and Part D proposed rule when it was released, and I’m bringing her back in to help provide an overview of the advance notice.
We have reviewed many advance notices through the years, and the first thing we, along with other stakeholders, look at is the top-line numbers. As seen in the table below, for CY 2027 CMS proposes a basic update of 0.09%, significantly lower than the 5.06% update finalized last year. CMS estimates that this payment increase will yield more than $700 million in additional MA payments to plans in CY 2027. The basic update accounts for the payment rates and policies that CMS specifically proposes in the advance notice. CMS also separately projects that risk scores will increase by 2.45%, on average, bumping the expected increase in payment to about 2.54% for 2027 (0.09% + 2.45%). The average increase finalized for 2026 was 7.16%. All in all, the actual increase in payments to MA plans could wind up being higher than CMS’s $700 million estimate after factoring in the effects of coding practices.
| Impact | CY 2026 Final Rate Announcement | CY 2027 Advance Rate Notice |
|---|---|---|
| Effective growth rate | +9.04% | +4.97% |
| Rebasing/repricing | -0.28% | TBD |
| Change in Star Ratings | -0.69% | -0.03% |
| MA coding pattern adjustment | 0% | 0% |
| Risk model revision and FFS normalization | -3.01% | -3.32% |
| Sources of diagnoses | N/A | -1.53% |
| Subtotal, basic update to plans | +5.06% | +0.09% |
| MA risk score trend | +2.10% | +2.45% |
| Expected average change in revenue | +7.16% | +2.54% |
It is important to keep two things in mind when looking at these numbers:
Now on to some of the key proposals driving the top-line numbers.
The effective growth rate of 4.97% is lower than many observers expected, given recent news articles about rising healthcare spending. CMS uses underlying Medicare fee-for-service data for Medicare Part A (hospital and other facility services) and Part B (physician and other outpatient services) to calculate the MA growth rate. The projected growth rate for Part A services (7.04%) appears to be significantly higher than projected growth in Part B services (3.91%). Lower Part B growth may be due to payment changes for skin substitutes that CMS finalized as part of the 2026 Physician Fee Schedule rule. CMS also proposes to exclude spending related to “significant, anomalous, and highly suspect” billings for urinary catheters in 2023 and 2024. However, CMS proposes to include additional payments made to rural emergency hospitals in the growth rate calculations, which would slightly increase Part B spending estimates.
There is a completely new category in the table above this year, called “sources of diagnoses.” CMS proposes changes to rules around how diagnoses get counted in MA plan risk scores, yielding a 1.53% overall reduction to the base rate:
The advance notice is not the venue for making changes to the Star Ratings, as that is done through the MA and Part D rule. The payment impact for Star Ratings reflects the 2026 ratings finalized last fall, which determine eligibility for quality bonus payments in 2027. The advance notice does include an invitation for feedback on potential new measures that would deter plans from providing unnecessary, inappropriate, or low-value care, or measures related to medical errors or misdiagnoses. CMS also indicates that it is considering adopting methodological changes to the way it calculates ratings in future years. While not immediately relevant for 2027, these signal changes we may see in future rules.
CMS recently revised the model that it uses to risk adjust payments to MA plans and phased in the new model over a three-year period. That phase-in is now complete and resulted in reductions to risk-adjusted payments to MA plans. Many stakeholders were hoping for a return to a stable risk model, but in the advance notice CMS proposes additional changes, including updating the data years used to calibrate the model and calculate the relative factors, removing limitations on risk scores for certain chronic kidney disease categories, and excluding audio-only diagnoses from the data used to create the model. CMS projects that the updates, together with application of a technical adjustment called “normalization,” will reduce risk-adjusted payments by $15.22 billion for 2027. These risk model revisions will likely see a lot of stakeholder engagement, including requests that CMS phase in the changes over time to blunt the financial impact, as CMS did for the new risk model.
CMS also proposes some important changes to Medicare Part D payments. Although not reflected in the table above, these changes, if finalized, would affect both Part D plans and MA plans that bundle medical and prescription drug coverage (MA-PD plans). As with MA, perhaps the biggest Part D change relates to the risk model. In an effort to address a growing gap between premiums for stand-alone Part D plans and MA-PD plans, CMS proposes to use separate Part D risk models for the two segments. This would be the first time CMS would calculate risk scores for the two groups independently, and would result in lower risk scores (and associated risk-adjusted payments) for MA-PD enrollees than under the current model. Risk scores and payments for stand-alone plans would increase, on average.
Application of the technical “normalization” adjustment should mitigate some of the impacts for 2027. Once again CMS proposes to calculate separate normalization factors for MA-PD and stand-alone plans. CMS introduced this change in 2025 as a way to reduce the gap between risk scores for the two segments. Despite objections from some plans, CMS remains committed to this methodology.
One Part D policy that CMS did not address in the advance notice is the Part D premium stabilization demonstration, first introduced for 2025. The demonstration was intended to alleviate premium increases resulting from changes in the benefit design mandated by the Inflation Reduction Act. In announcing the demonstration, CMS indicated it would apply for the initial year (2025) and at least two additional years, although the specific financial parameters would be subject to change each year. CMS continued the demonstration for 2026 with less generous terms for plans (and enrollees). The advance notice does not directly address the status of the demonstration for 2027, but this does not mean CMS will not continue it. An announcement may not come until CMS reviews Part D bids for 2027.
While major rules have a 60-day comment period, stakeholders have just 30 days to submit comments on the advance notice. Health plans will likely request that CMS scale back proposals that would reduce payments, either by revising the policies or phasing in changes over time. Providers who share risk with plans are also likely to provide feedback. Because of the short turnaround and the requirement for CMS to release the final notice by April, we will know relatively quickly how CMS will respond to stakeholder feedback and what revisions the agency might make to these policies and rates. In the meantime, please reach out to us with any questions!
Until next week, this is Jeffrey (and Lynn) saying, enjoy reading regs with your eggs.
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