By Elena Pak, Credentialing Department, WCH
Preliminary Rate Proposal and Chart Review Restrictions Trigger Industry Backlash
The Centers for Medicare & Medicaid Services (CMS) released its preliminary 2027 Medicare Advantage Advance Notice on Monday, proposing a minimal base rate update combined with restrictions on how insurers can report patient diagnoses for reimbursement purposes. The advance notice—the first step in the annual rate-setting process—triggered immediate pushback from health insurers and a sharp decline in major payer stocks.
The Payment Proposal: Understanding the Numbers
The 2027 Advance Notice—a preliminary proposal subject to revision—contains two distinct payment metrics that should not be conflated:
Official Base Rate Increase: CMS proposed a rate update of less than 0.1% (specifically 0.09%) for Medicare Advantage plans in 2027, translating to approximately $700 million in additional baseline payments to insurers.
Projected Combined Effect: CMS actuaries stated that when the base rate increase is combined with insurers' ongoing coding of member conditions for risk adjustment, total payments would be approximately 2.5% higher in 2027 compared to 2026. This 2.5% figure represents the cumulative effect of the minimal base rate increase plus expected diagnosis coding trends, not the official rate set by CMS.
According to industry analysts cited in Healthcare Dive, health insurers had projected payment rates would increase by 4% to 6% based on Medicare's underlying medical cost growth trends and the substantial rate increase granted for 2026. The proposed 0.09% base rate substantially underperforms these expectations.
The Medicare Payment Advisory Commission (MedPAC) reported in January 2026 that the federal government will pay an estimated $76 billion more for Medicare Advantage enrollees than it would for the same beneficiaries in traditional Medicare. MedPAC attributed a portion of these differential payments to what it characterized as "risk adjustment gaming" by insurers.
Chart Review Restrictions: The Core Reform
The advance notice proposes excluding "diagnosis information from unlinked chart review records... not associated with a specific beneficiary encounter" from risk score calculations beginning in 2027. Under this policy, diagnoses discovered through chart reviews—retrospective audits of medical records—would only count toward risk adjustment if tied to an actual medical encounter such as a doctor's visit.
Chart reviews are not utilized in traditional Medicare. According to a November 2024 Kaiser Family Foundation (KFF) analysis, one in six Medicare Advantage enrollees underwent a chart review in 2022 that increased CMS reimbursement to their health plan. MedPAC estimated in its March 2025 report that chart reviews generated approximately $24 billion in what it termed "overpayments" in 2023.
CMS regulators stated in the advance notice that the policy change would affect insurers differently depending on their use of chart reviews for risk-adjustment diagnosis reporting. The agency noted that Medicare Advantage carriers employing more chart reviews would experience disproportionate impacts.
Healthcare Dive reported that UnitedHealthcare, the largest Medicare Advantage carrier with over 8 million members, faces particular exposure to these changes. A Senate Judiciary Committee investigation published in January 2026 documented that UnitedHealth maintains dedicated coding teams to review medical records and deploys nurses for home visits to identify additional diagnoses. KFF data showed that while other major insurers including Centene, CVS, and Elevance conduct comparable levels of chart reviews per enrollee, UnitedHealthcare's market dominance means its practices likely contribute more to aggregate excess payments.
Administration Response and Industry Reaction
Medicare Director Chris Klomp defended the proposal during a Tuesday event at the Paragon Health Institute. Addressing questions about whether the advance notice signaled administration hostility toward Medicare Advantage, Klomp stated that the rate update "was based on CMS actuaries' analysis of underlying medical cost trends" and did not represent political weighting.
"Make no mistake. Let me not mince words in the least. We are massively in support of Medicare Advantage," Klomp said. He described the risk adjustment changes as intended to ensure program stability and competitive fairness. Klomp argued that risk adjustment "was created to make sure plans couldn't cherrypick healthier members, not give larger and wealthier companies with more resources a competitive advantage."
Alec Aramanda, principal deputy director of the Center for Medicare, stated in Monday's announcement call that the reforms aim to provide "renewed stability to Medicare Advantage... by strengthening public trust in the program such that plans are forced to compete on the value they provide" rather than "an arms race based on who can game the system better than the competition."
The health insurance industry issued strong objections. AHIP, the major payer lobby group, stated the rule would result in benefit cuts and higher costs for the 35 million Medicare Advantage enrollees. The Alliance of Community Health Plans characterized the advance notice as "disappointing and wholly unrealistic" while expressing support for addressing upcoding concerns.
Financial markets reacted sharply. In post-market trading Monday, Humana shares fell 12%, while UnitedHealth and CVS declined 9% and Elevance dropped 5%. Trading continued downward Tuesday, with UnitedHealth and Humana both down approximately 20% by afternoon, eliminating tens of billions of dollars in market capitalization.
Additional Risk Adjustment Modifications
The advance notice proposes several other risk adjustment changes beyond chart review restrictions. CMS indicated it would use more recent underlying Medicare data to calculate costs associated with beneficiaries' diseases and demographics. The agency also proposed excluding diagnoses from audio-only telehealth visits from risk score calculations.
These modifications build upon the V28 risk adjustment model that the Biden administration implemented in 2024 to address upcoding concerns. The V28 model is completing its phase-in period in 2026. While some research suggests V28 has reduced excess payments, insurance executives have attributed profit declines in part to this model's impact.
Program Dynamics and Political Context
Medicare Advantage has experienced contraction since 2024. Major carriers have reduced benefits and exited certain markets in response to what they characterized as higher-than-expected medical costs and regulatory changes affecting profitability. These adjustments contributed to elevated rates of plan-switching among seniors during the 2026 enrollment period.
CMS data indicates that approximately 1 million fewer people will enroll in Medicare Advantage in 2026 compared to 2025, representing the first decline in the program's market share in nearly two decades. Industry representatives stated that finalizing the 2027 rates as proposed would necessitate further benefit reductions and market exits.
The proposal arrives amid heightened congressional focus on healthcare costs. During January 2026 hearings, insurance CEOs faced questioning from lawmakers across party lines regarding Medicare Advantage billing practices. President Trump has publicly stated that insurers earn excessive profits, while CMS Administrator Dr. Mehmet Oz—previously a vocal Medicare Advantage advocate—has acknowledged the need for stronger action on upcoding.
These positions contrast with the first Trump administration (2017-2021), when Medicare Advantage insurers reported strong margins and faced less stringent regulatory oversight.
Regulatory Timeline and Uncertainty
Current Status: The 2027 Advance Notice represents a preliminary proposal, not final regulation. This advance notice is the first step in CMS's annual Medicare Advantage rate-setting process.
Comment Period: The proposal is open for public comment through February 25, 2026.
Final Rule: CMS will issue its final payment rule in early April 2026. The final rule may differ substantially from the advance notice based on industry feedback and additional agency analysis.
Historical Context: In previous years, final payment rates have typically been revised upward from advance notice proposals following intensive industry lobbying during the comment period. This pattern suggests the 0.09% base rate and chart review restrictions could be modified before finalization, though the extent of any changes remains uncertain.
Jefferies analyst David Windley wrote in a January 27 note that the industry should "expect intense advocacy efforts/negative messaging from the carriers." He projected that without modifications to the proposal, "plans [would need] to cut benefits substantially."
Industry representatives have indicated that if rates are finalized as currently proposed, further benefit reductions and market exits would be necessary beyond those already implemented for 2026.
Broader Implications
The degree to which the Trump administration maintains or modifies the proposed chart review restrictions and rate update will signal its priorities regarding Medicare Advantage oversight. The decision involves trade-offs between:
- Taxpayer costs: MedPAC estimates $76 billion in differential payments compared to traditional Medicare
- Insurer profitability: Major carriers have reported declining Medicare Advantage margins since 2024
- Beneficiary stability: Approximately 35 million enrollees who may face benefit changes or plan disruptions
CMS officials framed the reforms as necessary for program sustainability and public confidence. Medicare Director Chris Klomp stated the goal is ensuring Medicare Advantage plans "compete on the value they provide" rather than on risk adjustment optimization capabilities. Whether these policy objectives will be sustained through the final rule remains to be determined during the February comment period.
Sources
- Pifer Parduhn, R. (2026, January 27). CMS proposes excluding chart reviews from MA risk scoring in 2027 payment rule. Healthcare Dive. https://www.healthcaredive.com/news/cms-proposed-2027-advance-notice-chart-reviews-medicare-advantage/810549/
- Pifer Parduhn, R. (2026, January 27). CMS official defends flat Medicare Advantage rate proposal for 2027. Healthcare Dive. https://www.healthcaredive.com/news/medicare-director-defends-ma-2027-advance-notice/810635/
- Medicare Payment Advisory Commission. (2025, March). Report to Congress: Medicare Payment Policy. Chapter 11.
- Kaiser Family Foundation. (2024, November). Chart reviews increase payments to Medicare Advantage insurers for 1 in 6 enrollees.
