The Centers for Medicare & Medicaid Services’ (CMS) 2027 Medicare Advantage (MA) Advance Notice drew strong reactions across the industry, triggering major insurers’ stocks to plummet and creating uncertainty into the program already grappling with rising costs and shrinking margins.
While the headline number—a net average payment increase of just 0.09 percent—captured immediate attention, the bigger story may be the structural changes embedded in the proposal. These changes directly challenge business models that rely on documentation-driven revenue growth and aggressive risk adjustment strategies.
Here is a look at what industry experts are saying about the proposal:
Flat rates signal a more restrained CMS stance
MA plans had expected a 4 to 6 percent payment bump based on historical trends and the 5.06 percent increase CMS finalized for 2026. Instead, CMS proposed a near zero update—0.09 percent, or about $700 million industrywide to rein in long-term program spending and align payments more closely with traditional Medicare costs.
CMS actuaries note that when expected risk score growth is included, the effective year over year increase could reach 2.54 percent. But this may be difficult to achieve given the proposed changes to coding documentation requirements.
Implications: Flat rates in a high cost environment reduce already thin MA margins and increase pressure on plans to cut benefits, trim networks, or exit markets. Indeed, Chris Bond, a spokesman for AHIP, a health insurer trade group, said in a statement that “flat program funding at a time of sharply rising medical costs and high utilization of care will impact seniors’ coverage. If finalized, this proposal could 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.”
Mary Beth Donahue, president and CEO of Better Medicare Alliance, echoed those sentiments. In a statement, she said that the Advance Notice “falls short” of what is needed to provide stability in the market. “After years of underinvestment, seniors are already feeling the strain of rising health care costs," she said. "A proposal that results in effectively flat funding does not keep pace with rising medical costs and utilization, making it more difficult for plans to keep premiums affordable and maintain the supplemental benefits beneficiaries value most.”
The big story: A fundamental rework of risk adjustment
CMS’ most consequential move may be its proposal to exclude diagnoses from “unlinked chart reviews” or diagnoses not tied to a specific medical encounter, from MA risk scores beginning in 2027. Excluding unlinked chart reviews brings MA payments more in line with documented clinical encounters and reduces variation in coding practices across plans, according to CMS.
RELATED: OIG audit roundup: 3 MA plans were overpaid a total of $8.4M for high-risk diagnosis codes
This change would effectively remove a long criticized practice that has generated tens of billions of dollars in overpayments across the industry. For some big carriers, like UnitedHealth, Centene, CVS/Aetna, and Elevance, unlinked chart reviews have boosted revenue.
CMS estimates the exclusion of these diagnoses alone would reduce payments by 1.53 percent.
But Dawn Carter, director of product strategy at Centauri Health Solutions, cautions in a LinkedIn Post not to be misled into thinking that all unlinked chart reviews in MA indicate signs of fraud. Instead, she argues, they often stem from weaknesses in data infrastructure and governance. She pointed to a 2019 report issued by the Department of Health and Human Services’ Office of Inspector General noting several non-fraud explanations for unlinked reviews—such as incomplete encounter submissions, unsupported diagnoses, and lack of documented follow up—along with long standing findings from Medicare Payment Advisory Commission and the Government Accounting Office about pervasive encounter data completeness issues.
Implications: This change directly impacts business models built on documentation intensity rather than clinical encounters. But it may tilt the competitive landscape toward nonprofits and regional plans that historically have relied less on retrospective chart reviews. The Alliance of Community Health Plans (ACHP) supports the CMS proposed reforms, which the trade group called a “major victory for America’s seniors. In a statement, ACHP said that the Advance Notice will raise the quality bar and restore competition in the MA program.
CMS aims to redefine what counts as real patient care
The agency’s message is clear: “We do not want risk adjustment to be a source of competitive advantage,” said Chris Klomp, director of Medicare and deputy administrator at CMS, during a virtual event this week with the Paragon Health Institute.
Risk adjustment is being pulled back toward its original purpose—preventing adverse selection—not maximizing revenue to ensure the long-term stability of MA, according to Klomp. Plans will need to demonstrate that diagnoses correspond to actual care delivered, not purely coding capability.
CMS also proposes to exclude diagnoses based solely on audio only telehealth, further narrowing the scope of reimbursable documentation.
Implications: Plans must evaluate whether their models rely disproportionately on documentation-driven risk score inflation and prepare to shift toward real clinical management.
The end of ‘coding-as-strategy’
The 2027 Notice reflects a pivot from rewarding documentation to rewarding measurable clinical value. During a conference call with stakeholders shortly after the Advance Notice was released, Alec Aramanda, the principal deputy director of the Center for Medicare, said that the proposal signals the end of MA’s coding “arms race,” where larger insurers use scale, in home assessments, analytics, and chart reviews to maximize risk scores.
RELATED: OIG investigation: Medicare paid billions to MA plans for questionable health risk assessments
Implications: CMS is deliberately moving away from a model that rewarded aggressive coding, administrative scale, and metric-gaming disguised as quality, said Dr. Paul Luzuriaga, an executive physician, in a LinkedIn post. “The next era of Medicare Advantage will reward organizations that actually deliver health care, not just finance it,” he wrote.
Market impact
Health insurance stocks dropped 15 to 25 percent the day after the proposal, with UnitedHealth alone losing roughly 20 percent, or $62.4 billion, in a single day—its seventh worst day in history, noted Sergei Polevikov, author of AI Health Uncut on Substack.
Market analysts say the sell off reflects a recognition that MA is transitioning from a high growth, high margin sector to something more akin to a regulated utility, according to an article published by CTOL Digital Solutions.
Implications: Investor expectations are resetting. Plans must similarly recalibrate internal financial models for 2027 and beyond.
What MA plans should do now to prepare for the potential changes
Plans can provide feedback on the proposals through February 25 before CMS releases the final rate announcement, but industry experts say they should take steps now to navigate the new environment.
First, don’t panic: That’s the advice of industry expert Melissa Smith, founder, senior advisor, Newton Smith Group, in a LinkedIn post. “Final rates are almost always more favorable than Advance Notice draft rates. This administration has a track record of floating ideas that differ from final, codified reality. These are just drafts for now.”
Scrutinize and streamline cost structures: Flat rates mean MA plans must become significantly more efficient, especially for members with medical loss ratios above 85 percent. Smith suggests that plans “audit all material expenses and overhead allocations for technical precision and 2027-proofed impact. Eliminate redundancy. Redirect or enhance all spending toward precise, high-impact operational changes. Start now.”
Investigate the root cause of your unlinked cases: CMS own processes can create timing and identifier mismatches that break linkages between chart documented diagnoses and accepted encounter data, Carter said in the LinkedIn post. Health plans rely on timely, accurate provider claims, but state by state filing windows—and especially long timelines for out of network providers—often mean claims arrive too late to match previously accepted encounters. As a result, diagnoses documented correctly in the medical record may appear “unlinked” purely because of workflow delays or data quality gaps rather than documentation failures or fraud, she explains.
To address this, she recommends that health plans conduct internal root cause analyses to determine whether unlinked cases stem from claim lag, edit rejections, identifier mismatches, late submissions, or truly unsupported conditions. She also urges improvements in provider data hygiene, tightening claim submission timelines ahead of CMS deadlines, and using telehealth visits at year end to capture active conditions appropriately.
Prepare for network and market adjustments: Flat funding plus rising medical costs may force plans to consider network narrowing or geographic retrenchment—trends already accelerating.
Plan for a bipartisan shift in MA oversight: As The Wall Street Journal noted, MA has been historically favored by Republicans but the program is now facing bipartisan skepticism and pressure to curb overpayments. This signals a longer-term trend toward tighter regulation, regardless of the party in power.
RISE National speakers will be discussing the implications of the Advance Notice and strategies that MA plans should consider. The annual conference will take place March 23-25 in Orlando. Click here for more information about the agenda, roster of speakers, and how to register.