US Finalizes Medicare Advantage Payment Hike

The U.S. government has finalized a 2.48% average increase in payments to private insurers offering Medicare Advantage plans for older adults in 2027, significantly higher than the near-flat increase proposed in January.

This decision led to a surge in shares of major health insurers like UnitedHealth, CVS Health, and Humana. According to Reuters, shares rose between 8% and 14% in extended trading as investors cheered the final rate increase. The Centers for Medicare & Medicaid Services (CMS) stated that this would result in more than $13 billion in additional payments to Medicare Advantage plans in 2027.

The rate increase is expected to offer some relief for insurers, which had lost billions in market value after the Trump administration proposed a much smaller-than-expected rate increase of 0.09% for 2027 Medicare Advantage plans in January. Health insurers had argued that the January proposal did not reflect the realities of rising medical costs.

In addition to base payments, Medicare Advantage insurers receive additional payments based on how sick their members are, a process known as risk adjustment. This system has been criticized by watchdogs and auditors for being rife with abuse. The Trump administration initially proposed using newer data in the payment process but dropped this proposal after intense industry pushback.

CMS Administrator Dr. Mehmet Oz stated that these updates keep coverage affordable and ensure patients get real value from their plans. Medicare Advantage is a privately run health insurance plan contracted by Medicare, with more than half of Medicare beneficiaries enrolled in such plans due to lower monthly premiums and extra benefits not covered by traditional Medicare.