Today, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2026 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the CY 2026 Advance Notice). CMS will accept comments on the CY 2026 Advance Notice through 11:59 PM Eastern Time on February 10, 2025, before publishing the final Rate Announcement on or before April 7, 2025.
Each year, CMS is required to update MA payment rates and regularly conducts technical updates to make improvements needed to keep MA payments up-to-date and accurate. CMS makes technical updates and improvements through the proposed Advance Notice and final Rate Announcement process for this purpose. Per statute, the Rate Announcement must be released by the first Monday in April, which is April 7, 2025. If finalized, the proposed policies in the CY 2026 Advance Notice are projected to result in a net increase of 4.33%, or over $21 billion, in MA payments to plans on average year-over-year in CY 2026. We also proposed updates, where applicable, to reflect the Part D redesign as required by the Inflation Reduction Act of 2022. The FAQs below support the public’s understanding of the release.
Net Payment Impact
The table below indicates the expected average impact of the proposed policy changes on MA plan payment parameters relative to last year.
Year-to-Year Percentage Change in Payment Parameters
| Impact |
2026 Advance Notice |
| Effective Growth Rate |
5.93%
|
| Rebasing/Re-pricing |
TBD1 |
| Change in Star Ratings2 |
-0.69%
|
| MA Coding Pattern Adjustment |
0.00% |
| Risk Model Revision and FFS Normalization3 |
-3.01%
|
| MA risk score trend4 |
2.10%
|
| Expected Average Change |
4.33%
|
1Rebasing/re-pricing impact is dependent on finalization of the average geographic adjustment index and will be available with the publication of the CY 2026 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 Fee-for-Service (FFS) 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.
4 The MA risk score trend is the average increase in MA risk scores, not accounting for normalization and coding pattern adjustments to MA risk scores, which are shown in separate rows. For CY 2026, the MA risk score trend represents the estimated average annual change in MA risk scores from 2025 to 2026 calculated by using MA risk scores from 2022 to 2023 and using the 2024 CMS-HCC risk adjustment model. The trend is an industry average and individual plans’ experience will vary.
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 Medicare Fee-For-Service (FFS) per capita costs, as estimated by the Office of the Actuary. Included in the 2026 growth rate estimate is a technical adjustment to the per capita cost calculations related to indirect and direct medical education costs associated with services furnished to MA enrollees. In CY 2026, CMS is proposing to complete the three-year phase-in of this technical adjustment and apply 100% of the adjustment in CY 2026. Pausing the technical adjustment to growth rates regarding medical education costs would result in additional payments of $7.0 billion to MA plans in 2026 that are not necessary to support stability in the program.
Part C Risk Adjustment Model
CMS finalized an updated Part C Risk Adjustment Model (for organizations other than Program of All-Inclusive Care for the Elderly (PACE) Organizations) in the CY 2024 Rate Announcement and announced a three-year phase-in of the use of that model, referred to as the 2024 CMS-HCC risk adjustment model, starting with CY 2024. CMS continued phasing in the 2024 CMS-HCC risk adjustment model for CY 2025, and for CY 2026 CMS is proposing to complete the three-year phase-in of the 2024 CMS-HCC risk adjustment model, as described in the CY 2024 Rate Announcement, by calculating 100% of the risk scores using only the 2024 CMS-HCC model.
The 2024 CMS-HCC model included routine technical and clinical updates to improve the predictive accuracy of the model. Updates included restructured condition categories using the International Classification of Diseases (ICD)-10 classification system (instead of the ICD-9 classification system), updated underlying FFS data years (from 2014 diagnoses and 2015 expenditures to 2018 diagnoses and 2019 expenditures), and an updated “denominator year” to determine the average per capita predicted expenditures used to create relative factors in the model. The updates also included applying our longstanding principles to make clinical revisions focused on conditions that are subject to more coding variation.
In 2023, CMS announced its plan to complete this phase-in over three years to provide a glide path and predictability for plans and providers. Plans and providers have implemented the model smoothly and risk adjustment and payment levels have remained stable, and thus CMS is proposing to finish the phase-in as proposed to improve payment accuracy. For 2025, MA offerings for people with Medicare remained stable—including premiums, supplemental benefits, and coverage options. Additionally, MA rebates—used to provide supplemental benefits and premium buy-downs—have stayed stable at more than $2,400 annually per person on average, which indicates that MA payment has remained adequate during the phase-in of these updates. Pausing the risk adjustment model phase-in would result in $3.4 billion in additional payments to MA plans in 2026, which are not necessary to support stability in the program.
Therefore, a pause to the expected phase-in of the updated risk adjustment model and technical adjustment to MA growth rates regarding medical education costs would result in an additional $10.4 billion in payments to MA plans that are not necessary to support stability in the program. The federal government is expected to spend $9.2 trillion over the next decade on MA payments to plans—$1.3 trillion of it on MA supplemental benefits and premium buy-downs—and it is crucial these payments are accurate to prevent wasteful spending.
Additionally, CMS has been working to calibrate the risk adjustment model using MA encounter data (diagnosis, cost, and use data submitted to CMS by MA plans), and CMS will have the option to start phasing in an encounter data-based risk adjustment model as early as CY 2027.
Part C Risk Adjustment Model for PACE Organizations
In the CY 2025 Advance Notice, released January 31, 2024, CMS noted our intention to assist PACE organizations in their transition to encounter data submissions and implementation of the 2024 CMS-HCC model for PACE. Since then, CMS has been monitoring PACE encounter data submissions and participated in the National PACE Association’s annual conference, held a technical assistance call for PACE organizations, and has been responding to technical inquiries from PACE plans to support the transition. Given the extensive monitoring and technical assistance CMS has been providing to PACE organizations, CMS believes that data submissions will be significantly improved in 2025. As discussed, for CY 2026, CMS is proposing to begin this transition by calculating risk scores for PACE organizations as a blend of 10% of the risk score calculated using the 2024 CMS-HCC model and 90% of the risk score calculated using the 2017 CMS-HCC model. This 2024 CMS-HCC model improves payment accuracy (as stated previously for MA) in that it is based on more recent cost and diagnosis data and is based on ICD-10 codes. We also provide a proposed timeline for fully transitioning PACE organizations to an updated MA risk adjustment model with risk scores calculated using only diagnoses from encounter data and FFS claims in CY 2029. CMS’ intent is to provide a gradual path to allow PACE organizations time to become accustomed to the updated model.
MA Risk Score Trend
The MA risk score is a key factor in evaluating what the total level of MA payments will be for the following year, which is important for the public to understand when commenting on the proposed payment updates in the Advance Notice. If CMS omitted this estimate in the Advance Notice and Rate Announcement, it would underestimate MA payment levels to MA plans. The MA risk score trend accounts for the average annual increase in MA risk scores and is driven primarily by MA diagnosis coding patterns. It represents the projection, based on historical data, for how risk scores will increase for the next year, which results in higher payments to plans on average. Historically, the risk score trend has steadily increased over time, even in years when CMS implemented updated risk adjustment models. These trends are calculated using historical diagnosis data run through the model being proposed or finalized thus each model has a unique MA risk score trend. The MA risk score trend is a national average, and specific plan experience and regional variation also exists. For CY 2026, under the full phase-in of the 2024 CMS-HCC model and using the most recent two years of data, the CY 2026 MA risk score trend is projected to be 2.10%.
To calculate the MA risk score trend, CMS has historically used a rolling three years of MA risk scores such that the most recent MA risk scores available were used for estimation. However, since CY 2023, CMS has not updated the data years used to calculate the MA risk score trend due to the impact of the COVID-19 pandemic on risk scores. Rather, the trend was calculated using average MA risk scores from 2018 through 2020, which were the most recent three years of continuous MA risk scores based on diagnoses prior to the onset of the COVID-19 pandemic. For CY 2026, CMS believes it is important to reflect MA experience since the pandemic. However, CMS only has two years of risk scores available from after the onset of the COVID-19 pandemic (2022 to 2023 risk scores based on 2021 and 2022 dates of service). Consequently, for CY 2026, CMS calculated the MA risk score trend as the average annual change in MA risk scores over a two-year period (from 2022 to 2023). Aside from the use of one less year of risk score data, this method aligns with the historical method to calculate the MA risk score trend (i.e., slope) using the most recently available data. Additionally, if CMS had used the additional year the coding trend would have been higher, and CMS believes the 2.10% projection more accurately aligns with observed risk score trend during implementation of the updated risk adjustment model (called the 2024 CMS-HCC model). CMS expects to use a rolling three years of MA risk scores for CY 2027 when another year of MA risk score data is available.