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January 16, 2025 – Medicare Advantage (MA), the private insurance option under Medicare, is one of many policy areas that will garner great attention in 2025 and beyond under the incoming Trump Administration. We recently released our 2025 policy outlook exploring major health policy issues that might arise this year.
With respect to MA, the Trump Administration will soon have its hands full finalizing technical policies and payment rates for 2026. After that immediate policy rush, the Trump Administration may try to develop a long-term strategy for the program, which could involve dealing with underlying issues that the Biden Administration and other stakeholders have raised the last few years.
Enrollment in MA and other private health plans accounts has grown significantly over the past few years, now accounting for more than 50% of total Medicare enrollment. This growth (and other issues described more below) made it a target for payment and policy reforms under the Biden Administration. MA plans have expressed concerns about some of the Biden Administration’s MA policies. For example in the 2025 Final Rate Notice, issued on April 1, 2024, CMS finalized a 0.16% reduction to MA plans’ base payments for 2025, which some plans warned would cause them to stop providing certain supplemental benefits to their enrollees.
Last week, the Centers for Medicare & Medicaid Services (CMS) released the 2026 Advance Notice. Unlike last year, CMS proposed an increase in base payments for 2026. The Advance Notice includes policies and payment rates that the agency estimates would cause MA revenue to increase by 4.33% in 2026 compared to 2025. This percentage would translate to an increase of more than $21 billion in MA plan payments. Not all stakeholders view the proposed update as CMS does, however. Another perspective is that the base payment rate (the actual payment update) does not include the MA risk score trend (the average increase in MA risk scores across all MA plans). If that trend is included, the increase in payments is 2.23%. The argument for not counting the MA risk score trend is that risk scores vary depending on the specific population that an MA plan serves. Therefore, the risk score trend does not represent an actual guaranteed payment increase for MA plans.
| Impact | 2025 Rate Announcement | 2026 Advance Notice |
| Effective Growth Rate | +2.33% | +5.93% |
| Rebasing/Repricing | +0.07% | TBD |
| Change in Star Ratings | -0.11% | -0.69% |
| MA Coding Pattern Adjustment | 0% | 0% |
| Risk Model Revision and FFS Normalization | -2.45% | -3.01% |
| Base Payments (sum of the factors above) | -0.16% | +2.23% |
| MA Risk Score Trend | +3.86% | +2.10% |
| Expected Average Change in Revenue | +3.70% | +4.33% |
It is unclear how the incoming Trump Administration will handle the Advance Notice and whether these policies and payment rates will be implemented for 2026. In its press release, CMS seemed to warn the new Administration against making certain changes to its proposals. For example, CMS proposed fully incorporating its new risk adjustment model that has been phased in over recent years. If the Trump Administration decided not to fully incorporate the model, CMS estimates that change would result in $3.4 billion in additional payments to MA plans, which the agency believes are “not necessary to support stability in the program.” CMS also urged the incoming Administration to adopt a technical adjustment to medical education costs associated with services furnished to MA enrollees. For 2026, CMS proposed to complete the three-year phase-in of this technical adjustment and apply 100% of the adjustment in 2026. According to CMS, pausing the technical adjustment to growth rates in medical education costs would result in additional payments of $7 billion to MA plans in 2026, which CMS believes to be unnecessary.
Regardless of what the Trump Administration decides to do with these payment rates and policies in the 2026 Advance Notice, it will need to make the decisions quickly and act fast to issue the final notice. CMS stated that comments on this Advance Notice are due on February 10, 2025, and the final notice must be released by April 7, 2025. MA bids for 2026 are due on June 2, 2025. This is the first time in a while that a new Administration must finalize the MA notice proposed by an outgoing Administration. During the last presidential transition, the outgoing Trump Administration issued a 2022 Final Rate Notice on January 15, 2021 – right before President Biden was sworn in on January 20, 2021. In the transition before that, the outgoing Obama Administration did not propose or finalize a rate notice for 2018; the incoming Trump Administration issued the 2018 Advance Notice on February 1, 2017, and the 2018 Final Rate Notice on April 3, 2017.
In addition to the 2026 Final Rate Notice, the Trump Administration will also have to decide what 2026 MA technical policies to finalize from the MA and Part D proposed reg released in November 2024. Notably, CMS proposed to permit coverage of anti-obesity medications when they are indicated to reduce excess body weight and maintain weight reduction long-term for individuals with obesity. Citing “prevailing medical consensus,” CMS proposed a significant shift and reinterpretation of the statute to allow for coverage of these medications. Under the proposal, these drugs could not be excluded from Medicaid coverage and would be considered covered outpatient drugs. CMS estimates that this proposal, if finalized, would increase Medicare spending by $25 billion over 10 years, and Medicaid spending by $14.8 billion over 10 years ($11 billion for the federal government and $3.8 billion for states). CMS also included proposals regarding prior authorization, guardrails around the use of artificial intelligence, new behavioral health cost-sharing requirements, and oversight enhancements to crack down on “misleading marketing materials” from third-party agents and brokers. Comments on the reg are due January 27, 2025.
As I stated earlier, once these policies are settled, the Trump Administration may have its hands full deciding whether and how to address perceived issues with the MA program. Stakeholders have raised concerns about “overpayments” to MA plans compared to Medicare fee-for-service (FFS). The Medicare Payment Advisory Commission (MedPAC) estimated in a March 2024 report that Medicare spends an estimated 22% more for MA enrollees than it would spend if those beneficiaries were enrolled in FFS Medicare (i.e., 122% of FFS), a difference that translates into a projected $83 billion in 2024. MedPAC acknowledged that a portion of these increased payments to MA plans are used to provide more generous supplemental benefits and better financial protection for MA enrollees, and also noted that Medicare beneficiaries enrolled in FFS fail to benefit from those more generous benefits. MedPAC also estimated that in 2022, MA risk scores were about 18% higher than scores for similar FFS beneficiaries due to higher coding intensity (i.e., upcoding).
In October 2024, the US Department for Health and Human Services Office of the Inspector General (OIG) issued a report related to MA plans’ use of health risk assessments (HRAs) to drive up risk-adjusted payments. The OIG found that diagnoses reported only on enrollees’ HRAs and HRA-linked chart reviews, and not on any other 2022 service record for the patient, resulted in an estimated $7.5 billion in MA risk-adjusted payments for 2023 (and affected 1.7 million MA enrollees). The OIG believes that the lack of any other follow-up visits, procedures, tests, or supplies for these diagnoses in the MA encounter data for these 1.7 million MA enrollees raises concerns that either the diagnoses were inaccurate and thus the payments were improper, or the enrollees did not receive needed care for serious conditions reported only on HRAs or HRA-linked chart reviews.
Concerns also have been raised about MA plans’ use of prior authorization. According to KFF, more than 46 million prior authorization requests were submitted to MA plans in 2022. MA plans denied or partially denied 3.4 million (7.4%) of these requests, according to KFF’s report. While just one in 10 (9.9%) prior authorization requests that were denied were appealed, 83% of the appealed requests were approved – which KFF argues means that services eventually deemed medically necessary were delayed, potentially impacting patient health. CMS under the Biden Administration issued a final reg in January 2024 that attempted to streamline the prior authorization process for MA and other payers. The reg outlined new timeframes for prior authorization decisions. Impacted payers must provide a specific reason for denied prior authorization decisions and publicly report certain prior authorization metrics on their website. Legislation from the 118th Congress, the Improving Seniors’ Timely Access to Care Act (H.R. 8702/S. 4532), would have codified provisions of the January 2024 final rule for MA plans, including transparency requirements for plans’ prior authorization policies and requiring plans to implement electronic prior authorization. The version of the bill introduced in the 118th Congress also would have codified the timeframes finalized by CMS for MA plans to fulfill prior authorization requests – 72 hours for urgent request and seven calendar days for non-urgent requests. That bill was considered for inclusion in the December 2024 bipartisan health package, but negotiations around the language broke down before agreement could be reached. A version of the bill may be reintroduced in the 119th Congress. In addition to legislation, Congress has used hearings, investigations, and letters to highlight perceived problems with prior authorization practices.
Going forward, it is unclear if the incoming Trump Administration will continue examining these issues. The Trump Administration may ultimately decide to increase payments to MA plans and provide more flexibility for MA plans to offer additional benefits and boost enrollment, including by making it easier for individuals to enroll in MA through third-party agents and brokers. However, it is important to note that the first Trump Administration focused on promoting program integrity and cutting down unnecessary federal spending. In fact, in the Fiscal Year 2021 President’s Budget, the Trump Administration included a proposal that would accelerate the phase-in of the new risk adjustment model. That proposal was estimated to save $41 billion over 10 years. Decisions around MA policies could be impacted by these overarching policy objectives to reduce government spending and promote program integrity as much as any other segment of Medicare.
For more coverage of the Trump transition, check out our First 100 Days Resource Center. Until next week, this is Jeffrey saying, enjoy reading regs with your eggs.
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