2027 Medicare Advantage Proposal: Same Roller Coaster

Every January, CMS releases its Advance Notice for Medicare Advantage and Part D. Within hours, Wall Street analysts publish breakdowns, insurance executives begin earnings calls, lobbyists mobilize, and policy experts debate payment percentages.

Meanwhile, my phone starts ringing.

After more than 15 years advising clients on Medicare decisions, I can tell you this pattern is not new. The 2027 proposal is not shocking, unprecedented, or catastrophic. It is simply the next turn in a cycle that has been repeating for far longer than the past five years.

In fact, this annual recalibration has been part of Medicare Advantage for well over a decade. I will use the last five years as a clear example – but the pattern itself stretches back much further.

And for years, I have been advising clients to understand this reality so it does not catch them by surprise in the form of plan terminations, benefit reductions, or network disruptions.

CMS is projecting what amounts to a near-flat payment update once technical risk adjustments are factored in. Officials frame this as sustainability and payment accuracy. From a policy standpoint, that sounds reasonable. But from a plan design standpoint, even modest payment recalibrations ripple outward.

Let me break this down in plain terms.

When payment growth slows while medical utilization rises, plans do not simply absorb the difference.

They adjust copays. They revisit supplemental benefits. They renegotiate provider contracts. They tighten prior authorization requirements. They reevaluate county participation.

The marketing brochures may still look attractive – but the structure underneath shifts.

Risk Adjustment Tightening and Federal Scrutiny

For years, MedPAC, the HHS Office of Inspector General, and the Department of Justice have raised concerns that Medicare Advantage risk scores were increasing faster than traditional Medicare in ways not fully explained by patient health. There have been audits, investigative reports, and ongoing litigation related to coding practices and chart reviews.

CMS began phasing in a revised risk adjustment model in 2024 with a multi-year implementation schedule designed to reduce payments tied to unsupported diagnoses. The 2027 proposal continues that recalibration.

Here’s what this means in practical terms.

If plans can no longer rely on certain coding practices to increase revenue per member, and medical utilization is trending upward at the same time, margins compress.

And when margins compress, benefit design changes follow.

That is not a theory – it’s how the math works. Over the years – not just recently – I have consistently warned clients not to assume that this year’s benefit structure will automatically look the same next year. Because when federal payment formulas tighten, plan design adjusts.

The Last Five Years as a Recent Example

While this cycle has been going on much longer, the past five years provide a clear illustration of how it plays out.

Between 2021 and 2022, Medicare Advantage enrollment surged. The program crossed the threshold where more than half of all Medicare beneficiaries were enrolled in MA plans. Plans expanded aggressively into new counties. Supplemental benefits grew richer. Over-the-counter allowances increased.

It was a growth phase. Then conditions shifted.

In 2023 and 2024, deferred care returned. Inpatient admissions rose. Utilization patterns normalized to levels higher than many insurers had priced into their bids. At the same time, CMS finalized revisions to the risk model and recalibrated Star Rating cut points, reducing the number of plans qualifying for top-tier bonus payments.

Major carriers began citing margin pressure in earnings calls. Several county exits have been announced, affecting hundreds of thousands of beneficiaries. Plans trimmed supplemental benefits. Prior authorization oversight intensified.

In plain terms:

When a plan drops from 4.5 stars to 4.0 stars, bonus revenue can decline meaningfully. Bonus revenue funds extra benefits.

When bonuses shrink, dental maximums may drop. OTC allowances may decline. Hospital copays may rise.

That is exactly what many beneficiaries experienced over the last several enrollment cycles.

And this is why I have been advising clients for years – long before this most recent wave – to review their coverage annually in a serious way, so they are not surprised by changes or forced into rushed decisions when a plan exits their county.

The Part D Redesign Adds Financial Pressure

The Inflation Reduction Act introduced a $2,000 annual cap on out-of-pocket prescription costs. That is meaningful protection for beneficiaries. But the redesign also shifts more catastrophic-phase liability to plans.

If plans assume greater financial responsibility for high-cost drug spending, they must account for that risk somewhere in the bid.

That may show up in premium adjustments, formulary structure, tier placements, or supplemental benefit recalibration.

Financial pressure does not disappear. It moves. And over the years, whenever new policy layers are added, I have prepared clients by explaining that benefit adjustments often follow one or two cycles later.

The Structural Tension of Medicare Advantage

Medicare Advantage plans must simultaneously offer competitive premiums, provide supplemental benefits, satisfy shareholders, manage unpredictable utilization, and absorb regulatory recalibration.

In expansion years, that balancing act looks easy. In tight years, it becomes fragile.

Over the past five years – and honestly for much longer – we have seen enrollment growth, payment model revisions, Star Rating shifts, increased federal scrutiny, utilization spikes, and carrier exits. None of these forces alone destabilizes the program. But together, they create annual volatility.

And volatility shows up in October. That is when beneficiaries open their Annual Notice of Change and discover that something is different.

It happened in 2022.
It happened in 2023.
It happened in 2024.
It happened in 2025.

But similar cycles occurred long before that as well. That is why I consistently tell clients: do not treat Medicare Advantage as a “set it and forget it” decision. It is a year-by-year contract tied to federal bidding and corporate margin realities.

Sustainability vs. Stability

CMS is pursuing payment accuracy, oversight, and long-term solvency. Those are legitimate objectives. But payment tightening combined with rising utilization and expanded Part D liability increases structural pressure on plans. Pressure leads to redesign.

Let me say this clearly.

Medicare Advantage is an annual agreement. Benefits are recalculated every year. Networks are renegotiated. Formularies are adjusted. Cost sharing can change.

You are renewing coverage annually. You are not locking it in permanently.

This has been true for well over a decade – not just in the past five years.

And this is precisely why I have been encouraging clients for years to understand how these cycles work – so that plan terminations, benefit reductions, or county exits do not catch them off guard.

Why Medigap Is Fundamentally Different - Even Though It Costs More

Medigap works very differently. Yes, Medigap typically carries a higher monthly premium. There is no pretending otherwise. But what you are paying for is structural stability.

With Medigap:

• Benefits are standardized by federal law.
• Your coverage does not change year to year based on federal bidding cycles.
• There are no provider networks – you can see any doctor nationwide who accepts Medicare.
• Prior authorization is virtually nonexistent compared to Medicare Advantage.
• Your plan does not exit your county because of margin compression.

Premiums can increase over time, but the core coverage structure does not get redesigned annually. That is a fundamentally different risk profile.

Medicare Advantage is built on annual recalibration and competitive bidding. Medigap is built on standardized benefits and long-term predictability.

After more than 15 years advising clients, I have seen both systems up close. Medicare Advantage can work very well for the right person who understands the trade-offs and is willing to review coverage every year.

But for clients who prioritize stability over marketing incentives, who want to reduce the likelihood of surprise plan exits, and who prefer long-term predictability even at a higher premium, Medigap operates on a completely different foundation.

The 2027 proposal reinforces what I have been explaining for years.

Medicare Advantage is a year-to-year ride.

Medigap is not.

And the worst time to discover the difference is after your plan changes.

Sources and References

1. Centers for Medicare & Medicaid Services (CMS)
Medicare Advantage & Part D Advance Notices and Rate Announcements
https://www.cms.gov/medicare/health-plans/medicareadvtgspecratestats/advance-notices-and-rate-announcements

2. Medicare Payment Advisory Commission (MedPAC)
Report to Congress: Medicare Payment Policy
https://www.medpac.gov/document-type/report/

3. HHS Office of Inspector General (OIG)
Medicare Advantage Risk Adjustment and Audit Reports
https://oig.hhs.gov/reports/all/2024/medicare-advantage-questionable-use-of-health-risk-assessments-continues-to-drive-up-payments-to-plans-by-billions/

4. Kaiser Family Foundation (KFF)
A Dozen Facts About Medicare Advantage
https://www.kff.org/medicare/medicare-advantage-in-2024-enrollment-update-and-key-trends/

5. CMS – Medicare Part D Redesign Under the Inflation Reduction Act
https://www.cms.gov/inflation-reduction-act-and-medicare/part-d-improvements

6. Congressional Budget Office (CBO)
Medicare Advantage Payment & Enrollment Projections
https://www.cbo.gov/topics/health-care/medicare