2027 Medicare Advantage and Part D Advance Notice

2027 Medicare Advantage and Part D Advance Notice

Today, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2027 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the CY 2027 Advance Notice).

Each year, CMS is required to update MA payment rates and conducts technical updates supporting MA payment accuracy. This is accomplished through the Advance Notice and Rate Announcement process. If finalized, the proposed policies in the CY 2027 Advance Notice are projected to result in a net average year-over-year payment increase of 0.09 percent, or over $700 million in MA payments to plans in CY 2027. When considering estimated risk score trend in MA driven by coding practices and population changes, the expected average change in payments will be 2.54%.

Net Impact

The table below provides the expected average impact of the proposals on MA payment components relative to last year.

Year-to-Year Percentage Change

¹ Rebasing/re-pricing impact is dependent on finalization of the average geographic adjustment index and will be available with the publication of the CY 2027 Rate Announcement.

² Change in Star Ratings reflects the estimated effect of changes in the Quality Bonus Payments for the upcoming payment year.

³ The impact of the update to the normalization factors for MA risk adjustment is not shown in the fact sheet separately because there is considerable interaction between the impact of the MA risk adjustment model updates and the normalization factor update. Therefore, the combined impact is shown in the fact sheet. If CMS did not update the risk adjustment model the impact of normalization would be -1.50%.

⁴ This row shows the average impact of the exclusion of diagnoses from unlinked chart review records on risk scores.

⁵ The total does not include an adjustment for underlying coding trend in MA. For CY 2027, CMS expects the MA risk scores to increase, on average, by 2.45% due to the underlying coding trend.

Growth Rates

The Effective Growth Rate reflects the current estimate of the growth in benchmarks used to determine payment for MA plans. This growth rate is largely driven by the growth in Original Medicare per capita costs, as estimated by the Office of the Actuary.

Part C Risk Adjustment Model

CMS is committed to the sustainability of the MA program. As the agency considers opportunities for improving risk adjustment both in the 2027 Advance Notice and in the future, CMS is working towards a MA risk adjustment system guided by three principles: (1) simplicity to reduce day-to-day administrative burden for both plans and providers; (2) competition on creating value for patients where risk adjustment facilitates such competition equally for all varieties of plans irrespective of size or resources; and (3) payments that accurately reflect beneficiary health risk and facilitate the efficient use of healthcare resources, enhanced program integrity, and greater accountability.

CMS is proposing to update the Part C risk adjustment model. The proposed model continues to use version 28 (V28) of the clinical classification system first implemented in the 2024 risk adjustment model but is calibrated using more recent underlying Original Medicare data (updated from 2018 diagnoses and 2019 expenditures to 2023 diagnoses and 2024 expenditures) to reflect more current costs associated with various diseases, conditions, and demographic characteristics. The proposed model also includes refinements to exclude diagnoses from audio-only encounters. In addition, CMS is proposing to exclude diagnosis information from unlinked Chart Review Records (CRRs) - diagnosis information not associated with a specific beneficiary encounter - from risk score calculation starting in CY 2027. MA organizations may continue to submit diagnoses using unlinked CRRs, however, those diagnoses will no longer be used for calculating risk scores.

Part C Risk Adjustment Model for PACE Organizations

As noted in previous Advance Notices and Rate Announcements, CMS intends to transition Program of All Inclusive Care for the Elderly (PACE) organizations from submitting risk adjustment data to the legacy Risk Adjustment Processing System (RAPS) to fully submitting risk adjustment data to the encounter data system (EDS) consistent with the rest of the industry, and to align the model used to pay PACE organizations with the model used to pay organizations other than PACE. For CY 2027 payments to PACE organizations, CMS proposes to continue phasing out the 2017 CMS-Hierarchical Condition Categories (CMS-HCC) risk adjustment model by calculating risk scores using a risk score blend. Specifically, CMS proposes to blend 50% of the risk score calculated with the 2017 CMS-HCC model and 50% of the risk score calculated using the proposed 2027 CMS-HCC model. It is imperative to continue to align with the most current version of the CMS-HCC model being used for the rest of the industry during the transition to ensure PACE organization risk scores reflect recent updates and risk adjustment model improvements.

Puerto Rico
The proportion of people with Medicare who receive benefits through MA (as opposed to Original Medicare) is far greater in Puerto Rico than in any other state or territory. The policies under consideration for CY 2027 would be continuations of current policies and would support stability for the MA program in the Commonwealth and to Puerto Ricans enrolled in MA plans. These policies include basing the MA county rates in Puerto Rico on the relatively higher costs of individuals in Original Medicare who have both Medicare Parts A and B and applying an adjustment regarding the propensity of individuals with zero claims.

Part D Risk Adjustment

CMS is proposing updates to the Part D risk adjustment model to reflect Inflation Reduction Act (IRA) changes to the Part D benefit that will be in effect in CY 2027 - such as an increased manufacturer discount for specified small manufacturers having their discounts phased-in over time - as well as calibrating the model using more recent data years (2023 diagnoses and 2024 costs). The updated model also excludes diagnoses from audio-only services and from unlinked CRRs to be consistent with similar policies proposed for Part C.

Finally, CMS proposes to improve the model's predictive accuracy for beneficiaries in MA prescription drug (MA-PD) plans and standalone prescription drug plans (PDPs) by calibrating the model separately for the MA-PD and PDP populations, as well as continuing to calculate separate normalization factors for MA-PD plans and PDPs. These updates to the Part D risk adjustment model are essential for plan sponsors to develop accurate bids for CY 2027.

Part C and D Star Ratings

In the Advance Notice, CMS provides information and updates in accordance with the Star Ratings regulations at 42 C.F.R. §§ 422.164, 422.166, 423.184, and 423.186. In addition, CMS solicits input on future measures and concepts as we continue to enhance the Star Ratings over time.

Star Ratings updates in the CY 2027 Advance Notice include providing the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D improvement measures and Categorical Adjustment Index for the 2027 Star Ratings. We are also soliciting initial feedback on substantive measure specification updates and comments on new measure concepts. We are further seeking comments on updates to display measures which we publicly report but do not include in Star Ratings. All substantive measure specification changes, the addition of new measures, and methodological changes must go through rulemaking.

Process

Comments on the proposals set forth in the CY 2027 Advance Notice must be submitted by 11:59 p.m. Eastern Time on February 25, 2026. The CY 2027 Rate Announcement will be published no later than April 6, 2026.

To submit comments or questions on the CY 2027 Advance Notice electronically, go to www.regulations.gov , enter the docket number "CMS-2026-0034" in the "search" field, and follow the instructions for ''submitting a comment.''

The CY 2027 Advance Notice may be viewed by going to:

https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/announcements-and-documents and selecting "2027 Advance Notice."

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