At first glance, the finalized Medicare Advantage (MA) rate notice might look like good news to health plan leaders.
After proposing an essentially flat update in January, CMS finalized a higher-than-expected estimated increase of 2.48% for CY 2027 and softened the immediate impact of risk adjustment changes.
For an industry already slimming down benefits, products, and staffing in response to margin pressure, many may be tempted to treat this as relief.
But if you’re a Medicare Advantage leader, this is not a reprieve. It’s a narrowing window.
The final rule may be less disruptive than initially proposed, but the policy signals are clear: more fundamental change is coming.
CMS has been increasingly explicit about two goals: expanding the reach of risk-based payment and strengthening cost containment. What is less often said out loud is that, under the current model, those goals are in tension.
Today’s risk adjustment approach has well-documented limitations. It can reward coding intensity without a commensurate improvement in outcomes or value. And it has constrained CMS’s ability to act as a truly effective purchaser of health insurance coverage for the 50% of Medicare beneficiaries who enroll in MA.
That is why it seems increasingly likely that CMS will pursue a more fundamental reset.
With advances in data, analytics, and AI, along with the broad waiver authority available through the Innovation Center, CMS leaders are in position to mandate a risk adjustment model that replaces FFS-based risk adjustment with observed experience and outcomes within Medicare Advantage itself. In other words, a system that is harder to game and more tightly aligned to actual performance.
Paired with that “stick,” there are early signals of a potential “carrot”: policies like default enrollment into MA plans or aligned accountable care models. While still speculative, these approaches would significantly expand the reach of risk-based arrangements while accelerating pressure on plans to perform.
Taken together, this points to a very different future for Medicare Advantage.
For plan leaders, the implications are significant.
Margin pressure is now a permanent reality, not a cyclical moment. Organizations that rely primarily on revenue optimization to drive performance will find that path narrowing quickly. At the same time, supplemental benefits will face greater scrutiny for value. Network adequacy and transparency expectations will rise. And products that don’t deliver meaningful differentiation, particularly for complex populations, will struggle to attract and retain members.
This moment matters because it creates time to act — but not much.
Plans should be using this window to accelerate meaningful strategic and operational change:
- Designing benefits and clinical models that meet the needs of a rapidly growing, higher-acuity 80+ population
- Building deeper, more accountable provider partnerships
- Investing in integrated data and decision-making infrastructure
- Reducing administrative cost and complexity, including through AI-enabled approaches
The roadmap is not easy but it’s simple. There are fewer and fewer places to hide mediocre and poor performance in Medicare Advantage. The question isn’t whether to transform, it’s whether plans will use this moment to do it deliberately, or risk losing the business altogether.