A Potential Medicare Payment Hike: Impact on Seniors and Industry Experts
The Trump administration's proposal for a minuscule Medicare payment increase for 2027 has sparked concerns among industry experts and seniors alike. The Centers for Medicare and Medicaid Services (CMS) has proposed a mere 0.09% average increase, significantly lower than analysts' expectations of 4-6% and this year's 5.06% increase. This small hike could lead to either cuts in Medicare Advantage benefits or higher costs for seniors, according to some industry experts.
The CMS updates Medicare Advantage (MA) payment rates annually. In January, it proposed a 0.09% increase, far below the expected range. CMS is accepting public comments until March 1, with the final rate to be announced on April 6. Insurers warn that this small increase will result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026.
How does CMS calculate this small increase? According to Richard Kronick, a professor at the University of California, San Diego, two main changes were made to the calculation:
- An update to the data used for the estimate, from 2018-2019 to 2023-2024, resulted in a 3.5% reduction in payment.
- A policy change where CMS would no longer use diagnoses solely from chart reviews that can result in new diagnoses, including some patients haven't even asked their doctors to treat. This change reduces government payments, known as risk adjustment, to prevent risk selection and ensure care for sicker patients.
Excluding chart-only diagnoses results in a 1.5% reduction in payment, leading to the 0.09% increase. However, chart review diagnoses have been criticized for being unsupported and vulnerable to misuse, according to the Department of Health and Human Services' Office of Inspector General.
The impact on seniors is unclear. Some experts warn that older adults may end up making up the difference through higher premiums, reduced benefits, and fewer coverage options. Others note that CMS has been gradually reducing payment increases for a few years, and Medicare Advantage insurers have absorbed these changes. However, this could mean Medicare Advantage plans impose tougher prior approval requirements, leading to shorter hospital stays, less rehab services, and prior authorization for medications.
The CMS spokesperson defended the proposed changes, stating that they aim to ensure MA organizations focus on driving value for enrollees rather than coding practices. The spokesperson also emphasized that MA remains a strong and growing option for seniors, offering affordability, added benefits, and flexibility.
