After months of uncertainty, the Centers for Medicare & Medicaid Services (CMS) gave Medicare Advantage plans a gift with the 2027 Final Rate Notice and Final Rule. The agency increased payments well above its January proposal in the Advance Notice and held off on changes to the risk adjustment model, moves that many view as short-term relief for Medicare Advantage plans facing high medical costs.
But CMS has made it clear that this stability is not a reset. Instead, it marks a transition toward tighter program integrity, fewer shortcuts, and a sharper focus on clinical results.
“This isn’t just about adjusting measures; it’s about redefining success. We are moving away from administrative box-checking and laser-focused on clinical outcomes and the health of beneficiaries,” said Chris Klomp, director of Medicare for CMS and chief counselor of the U.S. Department of Health and Human Services, in last week’s announcement about the final rule.
In an interview with Health Tech Nerds Radio on Tuesday, he delved deeper into the agency’s rationale for the Final Rate Notice. His message to plans: CMS is prioritizing predictability and sustainability but will not tolerate risk-coding and revenue cycle games.
Financial relief and regulatory breathing room
CMS finalized a 2.48 percent average Medicare Advantage rate increase for 2027, a substantial bump from the 0.09 percent proposed in January’s Advance Notice, translating into more than $13 billion in additional payments to plans next year.
Even more important, CMS backed away from implementing a new risk adjustment model, sticking with the current CMS-HCC model and easing projected risk score pressure from roughly -3.3 percent to about -1.1 percent. For many plans, that decision alone preserved billions in expected revenue. “This was not just a rate update; it was a meaningful softening of what had looked like a tougher 2027 policy package, wrote Kelsey Stevens, CEO of Wakely Consulting Group, in a LinkedIn post.
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Furthermore, in the final rule, CMS followed through on a Star ratings overhaul, eliminating 11 largely administrative measures and restoring the historical quality bonus reward factor. The agency also opted not to implement the previously announced Health Equity Index reward. CMS estimates these changes will deliver approximately $18.6 billion in additional quality bonus payments over the next decade.
Not all plans will benefit
While general enrollment Medicare Advantage contracts may benefit from the Stars overhaul, Special Needs Plans (SNPs) face a steeper challenge. These plans, which are designed for individuals with specific chronic conditions or those who are dually eligible for Medicare and Medicaid, have driven much of the enrollment in Medicare Advantag plans this year.
A CMS analysis shows:
- 31 percent of SNP-only contracts could see a half-star decline
- Zero SNP-only contracts are projected to gain new quality bonus payments
“The direction the administration said they want to move this program in is going to make it much, much more challenging,” Jessica Assefa, senior vice president and partner at Press Ganey, told Modern Healthcare. “There’s no more easy button.”
Industry reaction: Relief doesn’t match cost reality
While the Final Rate Notice is an improvement, Better Medicare Alliance cautions that financial pressure on the Medicare Advantage program remains. “Health care costs continue to rise, driven by higher utilization, workforce shortages, and inflation across the health care system. Even with this stronger final rate, the program will continue to face real financial pressure that can make it harder to preserve affordability and maintain benefits for beneficiaries,” the advocacy group wrote in a blog post on Tuesday.
In a statement, American Medical Group Association (AMGA) President and CEO Jerry Penso, M.D., said the CMS update does not reflect the economic realities its members face every day. “Workforce costs are rising, supplies are more expensive, and delivering high-quality, coordinated care requires sustained investment.”
He warned that when payments fail to keep pace with care delivery costs, the consequences are predictable, such as cuts to supplemental benefits, higher beneficiary cost-sharing, and, in some markets, plan exits that leave patients with fewer choices.
Be aware of SSBCI changes
Perhaps no area changed more meaningfully than Special Supplemental Benefits for the Chronically Ill (SSBCI), according to Ana Handshuh, principal of CAT5 Strategies. In a LinkedIn post, she said that the final rule clarifies the definition of a chronic condition. For members to meet the definition, CMS clarified that:
- A listed chronic condition alone is not sufficient
- Plans must document all three statutory criteria and prove it for each member through an objective process:
o Condition is life-threatening/limits overall health or function
o High risk of hospitalization/adverse outcomes
o Need for intensive care coordination
- Self-attestation is not allowed
- Eligibility criteria and policies must be established before benefits are provided and publicly posted
“This was framed as a technical clarification—but operationally, it’s a big deal,” Handshuh said. “CMS says none of this is new… But the expectation to operationalize it cleanly, consistently, and transparently absolutely is. This very much should be on your radar as an issue to solve for today... but especially as you put your benefits together for 2027.”
Warning: CMS policies send message on integrity
CMS has made it clear that it is cracking down on coding games and loose benefit interpretations. In the final rule, the agency finalized policies excluding most unlinked chart review diagnoses from risk scoring (except for beneficiaries who switch from one Medicare Advantage plan to another), reinforcing its intent to tie payment more closely to actual care delivery.
The provision is central to CMS’ mission to restore fairness in risk adjustment. In his interview with Health Tech Nerds Radio, Klomp said the agency “will not reward risk-coding games or rev-cycle games. “We want to reward participants who win on the basis of helping our beneficiaries lead their healthiest lives.”
While he indicated CMS’ long-term support for the Medicare Advantage program, Klomp said risk adjustment must not create competitive advantage.