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The Trump administration handed Medicare Advantage plans a massive gift on Monday, finalizing payment rates for 2026 significantly higher than what regulators in the Biden administration sketched out.
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The 5.1% benchmark increase should accelerate margin recovery for the privatized Medicare plans following years of rates they said were insufficient — especially as those rates coincided with rising costs for seniors’ care. Insurer stocks soared after the payment notice was announced.
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The Trump administration also completed phasing in changes to insurers’ coding practices meant to make it harder to for them to inflate members’ sicknesses to garner higher reimbursement. The changes are unpopular with MA plans, which lobbied heavily to reverse them.
The 5.1% rate increase for MA plans is the largest rate increase in the past decade, and is up significantly from the 2.2% increase proposed by the Biden administration in January.
Overall, it should result in more than $25 billion in additional payments going to MA plans next year, according to the CMS.
However, the real sum will be higher, given the CMS’ estimate doesn’t include the impact of plans’ coding practices. The expected change in revenue for MA plans jumps from 5.1% to 7.2% including the impact of risk scoring.
It’s difficult to say how much this will inflate reimbursement in MA next year, a program that’s expected to cost taxpayers almost $600 billion overall in 2025.
But “CMS’ estimate of risk score trend would certainly increase the payments going to MA plans next year even beyond the estimate given in the rate notice,” said Lynn Nonnemaker, a senior director with healthcare consultancy McDermott+.
Advance versus final rate notices, 2015-2026
Final rates are generally higher than proposed ones, but the jump between the two was larger than some analysts had expected.
The CMS said the final rate is more generous because it was calculated using more recent data that reflects even higher spending in Medicare, as reimbursement attempts to catch up to the cost growth that’s hit payer’s profits over the past year.
Regulators increased the effective growth rate, a metric that tracks cost growth in Medicare, by more than 3 percentage points to upwards of 9% in the final notice. That “may be the largest increase we have seen,” Whit Mayo, an analyst with Leerink Partners, wrote in a Monday note.
“This reads very positive” for insurers, Mayo said.
It’s not surprising that the growth rate increased substantially, given the inclusion of data from the third and fourth quarters and plans’ prior concerns that previous estimates were too low, Nonnemaker noted. But “I can’t say that I expected 9%,” she said.
The rate notice reinforces that “MA rates are influenceable,” given the CMS gave “generous upward revisions” to multiple metrics that factor into cost growth, wrote Jefferies analyst David Windley in a Monday note.
“We maintain the Trump admin had its finger on the scale,” he said.
Trump’s CMS, under newly confirmed Administrator Dr. Mehmet Oz, the physician and television personality, was expected to be friendlier to MA plans as Oz has expressed support for the privatized Medicare program in the past.
However, during his confirmation process Oz walked a fine line between supporting MA and pledging to curb profiteering in the plans that’s brought them under congressional scrutiny and sparked discontent among the American public.
Early MA rules from Trump administration suggest regulators are committed to balancing on that tightrope. The CMS also recently finalized a rule putting some guardrails around MA plans’ coverage denials, but declined to take more radical steps proposed by its predecessors.
Regulators in the Biden administration were worried that the Trump administration would halt changes to how MA plans adjust for beneficiary risk, calling the reform “crucial” to ensure payment accuracy in a fact sheet on their proposed rule in January.
The adjustments are meant to prevent upcoding, when insurers exaggerate their members’ health needs to get higher reimbursement from the government. They do so by making plans’ coding processes more accurate, including removing frequently gamed medical codes from the risk adjustment model.
The CMS first instituted the changes in 2023, but have rolled them out over three years to lessen the shock on insurers. In 2026, 100% of beneficiary risk scores are set to be calculated using the new model.
That remains the plan. Finalizing the model will “improve payment accuracy and reduce burden,” the CMS wrote in the final rule, adding that MA plans have had ample time to assess the impact of its implementation.
“Given this experience, we do not think it is necessary to further delay,” the CMS said.
The Trump administration also finalized other payment policies that could cut into MA plans’ earnings, including changes to how normalization factors, which adjust risk scores for enrollees, are calculated for prescription drug plans — a proposal the CMS received considerable pushback on in comments on the rate, according to Nonnemaker.
Still, the Better Medicare Alliance, a lobby for the MA industry, thanked the Trump administration for “fully funding” MA in a statement Monday.
Stocks in major MA payers, including UnitedHealth and Humana, jumped aftermarket Monday following the rule’s release. Humana, which is particularly exposed to MA, quickly climbed 16% after the rates were announced.
The payment hike should help insulate insurers from the worst of rising costs, which flattened margins last year as seniors in the privatized Medicare plans used more medical care than expected. National payers have already cut benefits and exited underperforming markets for 2025 in a bid to resuscitate margins.
Plans will likely funnel the higher reimbursement in 2026 into improving profits, but could also increase their benefits, analysts said. That could result in even more Medicare-eligible seniors electing to join MA.
“Overall, we view the [2026] Final notice as a best-case scenario,” Ryan Langston, analyst with TD Cowen, wrote in a Monday note.
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