Medicare Advantage’s rocky road will smooth out in time with some political support
While earlier pilots and the Medicare+Choice program lived before Medicare Advantage (MA), technically MA celebrated its 25th birthday recently. The Balanced Budget Amendment of 1997 created MA, with coverage starting in 2000. The 25th MA year began with insurers thinking better times were ahead when the pro-business and private healthcare Trump administration returned to power. Yet things didn’t quite turn out that way.
What happened in 2025?
- The administration demanded major prior authorization reforms out of the industry in 2025.
- A major risk adjustment data validation (RADV) initiative to recover overpayments from plans was proposed. Every conract for every payment year would be subjected to a targeted RADV audit.
- At the end of 2025, the administration proposed a draft rule that would fundamentally change the Star rating program. It eliminates many easy-to-hit measures as well as the health-equity bonus program. Ratings remain at just above historic lows and the changes could mean 25% or more of plans lose a half Star rating in 2029.
- The Trump administration did finalize a rate hike for 2026 that was just over 5%, but in early 2026 its 2027 preliminary hike is roughly flat. That could increase some by April when final rates are announced for next year.
- The rate announcement also included risk adjustment changes above and beyond the v28 model that was implemented from 2024 to 2026.
All of this limits revenue in the future and the ability to use managed care principles to constrain costs.
The fallout
Actuarial and consulting firm Milliman finds that the average total value added continued to erode from 2025 to 2026, with total value added across general enrollment MA plans declining by more than 8%. The 2026 benefits marked the largest decline in MA.
As well, actuarial and consulting firm Wakely finds that the average member premium for general enrollment plans increased from $12.09 per member per month (PMPM) in 2025 to $14.77 PMPM in 2026. The average plan value-add for general enrollment plans decreased roughly 11.0% between 2025 and 2026. Similarly, Dual Eligible Special Needs Plans (D-SNPs) also saw a decrease in average plan value-add, but just 2.6%.
Again, given that MA plan finances have been struggling over the past several years, plans not only contracted benefits, but also products and geographies in 2025 and 2026. The relatively flat rates could lead to something similar again in 2027.
In 2026, MA enrollment grew just 2.5% after growing just 4.4% in 2025. Seven states saw MA enrollment decline for the first time largely due to plan exits. Traditional Medicare enrollment grew by 600,000 beneficiaries this year, reversing years of decline. So, more people did choose traditional Medicare than in past years given some of the MA woes, yet MA still grew more than FFS — by about 900K from 2025 to 2026.
A plan executive survey found that 69% of MA leaders expect their enrollment to remain flat or contract in 2027. Nearly 70% anticipate offering less benefits next year. But they do not expect a negative five-year outlook.
Chicken Little thinking simply is not right
But with apologies to Mark Twain, the reports of MA’s death are greatly exaggerated. Here is why. There is no question that cracks in the foundation of MA are showing. Some of this was external forces, such as poor rates, risk adjustment changes, and high utilization coming out of the COVID pandemic (it is still with us). But a lot of it was poor financial discipline on the part of plans, especially large ones, who wildly invested in expansion and took their eyes off of financial and operational discipline. Plans and investors were in a frenzy. And now MA plans have to adapt.
- The major expansion of benefits, the PPO products, and even geographies were never financially feasible.
- Despite the struggles, MA has still expanded, if at lower rates of growth. This shows the relative attractiveness (even now at lower benefit levels) of MA over traditional Medicare fee-for-service (FFS). Many had predicted a real reduction in MA from 2025 to 2026 and during 2026 enrollment. Neither happened. MA grew by 874K from 2025 to 2026 and 115K in open enrollment.
- The Centers for Medicare and Medicaid Services (CMS) understands the bulwark that is MA in the overall Medicare program.
- In a sign of commitment to and the strength of the program, smaller and regional plans picked up the slack during open enrollment, expanding by 443K as big plans collectively fell by 328K.
- SNP growth surged 647K year over year and 249K during open enrollment. Some of this is due to financial and marketing strategies. But it still aids those with social determinants of health and multiple comorbidities.
- And at least some of the changes are merited. As an example, some plans, largely big national ones, abuse the risk adjustment system. It soaks the Medicare trust fund and government appropriations and is unfair to smaller and regional plans playing more by the rules. The changes actually level the playing field.
None of this is to say that MA plans are not struggling and that some policies are hurting the MA program’s stability. And these lead directly to the benefit and other erosion we see.
But there is some reason to believe that more and more policy makers seem to get the negative impacts of continuous assaults and annual policy ratchets that are being undertaken. People are beginning to understand that egregious misstatements on overpayments and unreasonable reductions are and will undermine the stability of MA for plans and more importantly beneficiaries.
For years congressional policy arm MedPAC and opponents of Medicare Advantage (MA) have been touting studies that say MA rates are entirely too high. The healthcare and mainstream press have picked up on the claims. The same is true for Capitol Hill. But at least some of the wind will be taken out of the sails of MedPAC and MA opponents due to a new risk model that has been implemented.
Much to MA plans’ chagrin, back in 2024 CMS began implementing v28 of the risk adjustment model. The model essentially reforms the risk adjustment process by changing how diagnosis codes map to risk-adjusted payments. CMS removed a large number of previously payable diagnosis codes and changed how some conditions are weighted, aiming to better reflect true health cost drivers. It had the effect of reducing the upcoding that occurs in risk adjustment.
The effect of all this is that the critics of MA will have less and less to rely on in their attacks. Because the full effect of v28 did not hit entirely until 2026, the press continues to pick up on inflated figures from prior years that continue to be cited by the critics. But more information is slowly coming out that shows the dramatic impact of v28 on overall structural overpayments.
The risk adjustment coding intensity amount has dropped from 10% after the coding intensity adjustment to just 4% in its model. An analysis by CMS of the impact of v28 puts the coding intensity overpayment at just 2%. I would note that MedPAC continues to claim in 2026 that MA is over-reimbursed by about 14% due to an over 10% beneficial selection calculation. But even MedPAC has had to relent on at least part of its overpayment mantra. And now even more changes are proposed on v28 for 2027 that may close the overpayment gap almost completed.
Bipartisan duo to the rescue, armed with concrete analysis
But some are now sounding the alarm bells trying to tell the Trump administration and Capitol Hill that things might be going a little too far and too fast. Enter Donna Shalala (Health and Human Services Secretary under Bill Clinton) and Tommy Thompson (HHS chief under George W. Bush). The duo penned an opinion piece in STAT that laid out the case for MA and what is happening to undermine the program. They noted the following in the early February piece:
- CMS is pitching stable premiums as MA stability, but fewer plan choices, reduced supplemental benefits, and higher out-of-pocket costs are real. And reductions do not hit beneficiaries or regions in the same way.
- In 2026, 2.6 million seniors saw their MA plans discontinued, double last year’s total.
- They note the importance of MA as a lifeline for those who cannot afford expensive Medigap policies and the 20% cost-sharing the traditional program.
- The pair says the “erosion is not an accident of the market — it is the direct, predictable consequence of flawed policy, and it’s putting the stability of a vital program in jeopardy.” They add: “These policy changes stem from an inaccurate Washington narrative that claims MA has failed to reduce Medicare spending.”
- In the politest terms, the former secretaries essentially excoriate MedPAC for its ongoing twisted analyses on MA overpayments. They cite a report from the Healthcare Leadership Council that deconstructs the policy arm’s “flawed analysis that quadrupled its own estimate of MA ‘overpayment’ compared to FFS.” They cite a MedPAC methodology that was revised in a way “that essentially compares apples to oranges” and uses” outdated and incomplete data” to suggest that MA plans are “overpaid.” They note that MedPAC admits that MA is paid at or below traditional Medicare before questionable adjustments.
- The former HHS chiefs note MedPAC revised is estimate to a 14% overpayment – 10% for dubious assumptions on favorable selection and now 4% on risk adjustment overpayments. They cite this as more evidence of the dubiousness of MedPAC’s analyses.
- Shalala and Thompson say that the MedPAC and other narratives “put seniors’ care at risk by driving policy decisions that threaten the very foundation of a program that works.”
- They argue that the cuts being made favor large national plans and undermine smaller and regional players that can perhaps serve seniors the best.
One last quote from the STAT article by them:
“Medicare is the bedrock of retirement security in this country, and a majority of beneficiaries rely on MA. While it is crucial to maintain vigilance over costs, policymakers in Washington should not base major decisions on contested accounting that risks undoing a highly valued public-private partnership. Instead, they must focus on fundamental program sustainability and leveraging technology to improve patient outcomes and experiences.”
In summary, the STAT article and HLC analysis were a slap down of MedPAC, fuzzy-math (not the real fuzzy math of course) academics, and single payer elites who have created a narrative that is wholly political and devoid of reasonable analysis and assumptions. Both the STAT article and HLC analysis are below. Each is chock full of the right arguments on MA – that MA saves, is value-based, serves the most vulnerable, has improved outcomes, and is different than traditional Medicare.
While reasonable and accountable measures should be taken in any government program to reduce fraud, waste, and abuse, Shalala, Thompson, and the HLC give hope that CMS and Capitol Hill will see through the flawed data and stop undermining MA more. But there is worry the flawed narrative will continue to dominate and influence policy. For example, the bipartisan congressional Joint Economic Committee (JEC) just issued findings that overpaying Medicare Advantage (MA) plans caused Medicare Part B premiums to rise from $185 in 2025 to $203 in 2026. The committee relied on the MedPAC data.
“Today, between aggressive upcoding, questionable quality bonuses, and structural overpayments in Medicare Advantage, seniors who stay in traditional Medicare are effectively subsidizing the system. That’s not sustainable, it’s not fair, and it can be reformed,” said Chair Rep. David Scweikert, R-AZ. The report called for action.
The HLC and the STAT are a start, but the industry has far more to do apparently.
HLC and STAT resources:
https://www.hlc.org/wp-content/uploads/2025/10/HLC-MedPAC-Report_.pdf
https://www.statnews.com/2026/02/05/medicare-advantage-reforms-donna-shalala-tommy-thompson/
#medicareadvantage
— Marc S. Ryan
