By Bill Pan
Contributing Writer
The federal government will increase payments to private Medicare insurers by 2.48% in 2027, far more than it initially proposed.
The Centers for Medicare & Medicaid Services said on Monday that the finalized rate will translate into more than $13 billion in additional payments to Medicare Advantage plans next year. In January, the agency had proposed a much smaller average increase of 0.09%, or about $700 million.
CMS said the 2.48% figure includes several factors affecting payments, including growth in underlying costs, 2026 Star Ratings that will determine 2027 quality bonus payments, and risk-adjustment updates. When estimated risk-score trends are included, the agency said, the overall payment increase will amount to 4.98%.
The higher rate could help insurers stabilize their Medicare Advantage businesses by offsetting rising medical costs. It could also help plans to keep premiums lower and preserve benefits that attract seniors to the program. According to health policy research firm KFF, more than half of eligible Medicare beneficiaries were enrolled in the privately run plans in 2025, accounting for 34.1 million people.
“Medicare Advantage and Part D should work for the people who rely on them,” CMS Administrator Dr. Mehmet Oz said in a statement. “These updates keep coverage affordable and ensure patients get real value from their plans.”
Insurers closely watch the annual rate notice because it shapes how much they are paid to provide benefits, which in turn affects their profitability. When CMS proposed the near-flat 2027 rate in January, shares of major U.S. health insurers that rely heavily on government-backed Medicare Advantage for growth plummeted as investors offloaded their holdings.
The higher-than-expected rate increase sent shares of major insurers soaring. UnitedHealth Group, Humana, CVS Health, and other managed-care companies all rose sharply in trading on Tuesday after regulators announced the final payment update.
Earlier this month, CMS finalized a separate rule reshaping the Medicare Advantage star-ratings system, which scores MA plans on a scale of 1 to 5 using a complex formula based on dozens of measures, including clinical outcomes and patient experience.
Under that rule, CMS said it would not implement the so-called “health equity index,” a Biden administration policy that had been scheduled to take effect next year. Instead, the agency said it would reinstate the historical reward factor for plans with consistently strong performance.
CMS also said it would remove 11 star-ratings measures tied to administrative processes, including one assessing insurer call-center performance and others related to documentation, disclosures, and complaints. The agency described those measures as “duplicative and burdensome” because they generally received high scores and showed little variation across plans.
According to the agency, the changes are meant to refocus the star-ratings program on measures that are more meaningful to beneficiaries choosing coverage. CMS has said the revisions are expected to cost taxpayers more than $18 billion over the next decade.
