On Monday April 7,2025, the Medicare industry received some good news; CMS raises Medicare Advantage Pay. The Centers for Medicare & Medicaid Services (CMS) announced a 5.1% increase in payments to Medicare Advantage plans for the upcoming year, 2026. This number surpasses the initial projections. This adjustment is a response to rising healthcare costs within traditional Medicare, particularly inpatient hospital expenses.
Impact on Health Insurers
During the last 2 years, Medicare Advantage insurers have stated the federal payments did not keep up with rising medical costs they incur. They also had issue with CMS‘ stringent quality reviews, payment audits and marketing rules of the previous administration.
The adjusted payment amount provides the Medicare Advantage industry some room to breathe. It gives the Medicare industry hope for a positive interaction with the new administration moving forward.This is the most signifigant boost the payment rate in the last decade. The raise proposed by the last administration was said to be 4.33%.
Following the announcement, major health insurance companies experienced significant stock market gains:
- Humana: Shares rose by 14%.
- CVS Health: Experienced a 7% increase.
- Elevance Health: Saw an 8% gain.
- UnitedHealth Group: Shares climbed by 6%.
Click here to read how raise affects stock prices
These increases reflect investor optimism regarding the enhanced revenue prospects for insurers offering Medicare Advantage plans. Hopefully this upward trend will continue.
Underlying Challenges
Despite the positive market reaction, industry experts caution that the payment increase does not fully address the issue of escalating healthcare costs. Factors such as increased service utilization and wage inflation continue to add stress to the healthcare system. Providers facing inflation issues may find ways to pass additional costs onto employers and retirees if Medicare reimbursements do not cover their costs sufficiently.
There is also the issue of some CMS policies that are unpopular with the carries such as; the revised risk adjustment system. This system may be challenging to insurance carriers with it’s limits on their ability to acccurately code their member’s helath conditions. Possibly resulting in insufficient reimbursements for services.
Watch a quick YouTube video on the proposed 2026 final rule
Future Outlook
While the payment boost provides some financial relief, the sustainability of Medicare Advantage plans remains uncertain. Insurers may need to adjust supplemental benefits and premiums to align with actual costs. The broader challenge of controlling healthcare expenses persists, necessitating ongoing policy adjustments and industry strategies.
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