The Centers for Medicare & Medicaid Services (CMS) has issued the Calendar Year (CY) 2026 Advance Notice, proposing updates to payment policies for Medicare Advantage (MA) and Medicare Part D Prescription Drug Programs. This release builds on the Contract Year 2026 MA and Part D proposed rule from November 2024, continuing CMS’s commitment to fiscally responsible, technical updates aimed at maintaining the stability and affordability of these programs.

Proposed Payment Updates

CMS projects an average payment increase of 4.33% for MA plans from 2025 to 2026, translating to over $21 billion in additional payments. These changes reflect ongoing refinements to ensure accurate, up-to-date reimbursement structures that support high-quality, affordable care for Medicare enrollees.

The agency previously finalized a 3.7% payment hike for 2025; however, insurers raised concerns about a base payment cut of 0.16%. CMS highlighted the overall increase after adjusting payments based on patient population health. For 2026, the proposed base rate is 2.23%, with a total increase of 4.33% when factoring in health risk scores.

Risk Adjustment Model and Growth Rate Calculation Improvements

A key component of the CY 2026 Advance Notice is the completion of a three-year phase-in of updates to the MA risk adjustment model and growth rate calculations. Originally outlined in the CY 2024 Rate Announcement, these updates account for medical education costs and other technical improvements. CMS’s phased approach aims to balance predictability for plans and providers while enhancing the accuracy and integrity of MA payments.

Pausing the phase-in would result in:

• An additional $3.4 billion in payments to MA plans from halting risk adjustment updates.
• An additional $7.0 billion from delaying medical education cost adjustments.

Together, these measures would add $10.4 billion in unnecessary payments, underscoring the importance of continuing with the planned updates to safeguard taxpayer dollars.

Stable and Predictable Benefits

For 2025, MA offerings remained stable, with consistent premiums, supplemental benefits, and plan options. Rebates averaged more than $2,400 per person annually, demonstrating that payment levels have been adequate under the phased implementation. These results support CMS’s strategy of responsible, data-driven adjustments to MA payment policies.

Medicare Part D Redesign Program

Concurrently, CMS has released Draft CY 2026 Part D Redesign Program Instructions. This guidance advances implementation of the Inflation Reduction Act’s prescription drug cost reforms. Key provisions include:

• The first-ever cap on annual out-of-pocket prescription drug costs, set at $2,100 for 2026, adjusted from the $2,000 cap in 2025 for inflation.
• Continued efforts to improve affordability and access for Medicare beneficiaries.

Comment Period and Next Steps

Public comments on the CY 2026 Advance Notice and Draft Part D Redesign Program Instructions are open until February 10, 2025. CMS will finalize the CY 2026 Rate Announcement and publish the final Part D Redesign Program Instructions by April 7, 2025.

The CY 2026 Advance Notice may be viewed at https://www.cms.gov/files/document/2026-advance-notice.pdf.

A fact sheet discussing the provisions of the CY 2026 Advance Notice can be viewed at https://www.cms.gov/newsroom/fact-sheets/2026-medicare-advantage-and-part-d-advance-notice-fact-sheet. 

The Draft CY 2026 Part D Redesign Program Instructions can be found at https://www.cms.gov/files/document/draft-cy-2026-part-d-redesign-program-instructions.pdf. 

A fact sheet discussing the provisions of the Draft CY 2026 Part D Redesign Program Instructions can be viewed at https://www.cms.gov/newsroom/fact-sheets/draft-cy-2026-part-d-redesign-program-instructions-fact-sheet. 

Medicare Advantage Under Congressional Scrutiny

Despite its growth and popularity, Medicare Advantage faces increasing scrutiny from Congress. Key concerns include a high rate of care denials and restrictive cost-control mechanisms. Plans often maintain narrow networks, requiring enrollees to pay out-of-pocket for out-of-network care, and impose prior authorization rules that require provider approval before certain services or prescriptions are delivered.

Doctors report a surge in prior authorization requests, even for routine care, while insurers defend the practice as necessary to prevent unnecessary services. Some insurers, like UnitedHealthcare, are exploring reforms such as a "gold card" system granting streamlined approvals to providers with high approval rates.

CMS pays significantly more for MA compared to traditional Medicare. A March 2024 MedPAC analysis projected $83 billion in additional payments to MA plans relative to traditional Medicare. To address these concerns, CMS has:

• Reduced reimbursements.
• Overhauled plan audits to identify overpayments.
• Finalized regulations requiring timely responses to prior authorization requests.

While insurers claim these measures have led to market exits and reduced benefits, CMS continues to emphasize accountability and efficiency.

Trump Administration Outlook

While Medicare Advantage did not receive significant attention on the campaign trail, the Trump administration often provided favorable payment updates during his first term. Trump’s CMS Administrator, Mehmet Oz, praised the program, which allows older Americans to purchase private plans offering benefits beyond traditional Medicare, such as dental, hearing, food deliveries, and transportation to medical appointments. The program now serves over 32 million enrollees.

Stakeholders should stay informed on potential changes and be prepared to adapt to new regulatory requirements in the coming years. The Nelson Mullins federal advocacy team has extensive healthcare experience to bring clients an understanding of how the legislative, administrative, regulatory, and political processes operate on the Hill and at various state houses and, in turn, impact your industry and members.

Please reach out to Jake Kohn for any questions regarding this topic.