Medicare Advantage 2027: $13 Billion Pay Raise Meets Rising Costs

A pay raise that went from flat to $13 billion

In January, federal regulators proposed almost no increase in what Medicare pays private insurers. By April that plan was gone. The Centers for Medicare & Medicaid Services (CMS) finalized a 2.48% average increase in Medicare Advantage (MA) payments for 2027, which comes to more than $13 billion above 2026 levels.24 The January advance notice had projected growth of only 0.09%, or about $700 million.24 Once CMS factors in how plans' risk scores tend to rise, from changes in enrollment and from coding, the agency says the effective increase is 4.98%.27

Open enrollment for 2027 runs from October 15 through December 7, so seniors are now seeing what that money bought. The answer is mixed. Average premiums are falling, but many plans are leaving markets and cost-sharing is going up. Meanwhile, workers and Medicaid enrollees face much harsher conditions in the same year.

How the number climbed

The coverage agrees on the mechanics. CMS raised its effective growth rate from 4.97% in the advance notice to 5.33% in the final announcement after adding Original Medicare cost data through the fourth quarter of 2025.27 That growth rate was then reduced by several offsets: −1.12% for risk adjustment normalization, −1.53% for a new policy on which diagnoses count toward risk scores, and smaller cuts for rebasing and Star Ratings.21

The bigger decision was what CMS chose not to do. The agency dropped its proposed new risk adjustment model, which was built on 2023 diagnoses and 2024 spending. It will keep using the 2024 model, which is calibrated on 2018 diagnoses and 2019 spending data.24 The American Hospital Association said this reversal explains a large share of the jump from the advance notice to the final rate.24 STAT put it more bluntly: by sticking with older data, CMS lets insurers keep billions of dollars they would otherwise have lost.29

CMS did keep one integrity measure. Starting in 2027, diagnoses that come from "unlinked" chart reviews, meaning records not tied to an actual patient visit, will no longer count toward risk scores. People who switch plans mid-year are exempt.28 The agency acknowledged that plans relying most heavily on this practice will lose the most money.21 CMS also kept the coding adjustment at the 5.9% statutory minimum.27

Wall Street cheered, advocates didn't

The reactions split along familiar lines. UnitedHealth shares rose more than 10% the next day, Humana gained 8%, and CVS Health rose nearly 7%.22 Those three companies cover nearly 60% of all MA enrollees.29 Bloomberg, as cited by Quartz, reported that the January proposal had erased close to $100 billion in insurer market value.28 A Mizuho analyst said the rate, combined with benefit cuts, should let insurers grow margins in 2027.22 One investment executive estimated the real increase at 3.5% to 4% once the other payment changes are included.30

The Medicare Rights Center called the outcome a repeat of past years, saying CMS gave in to industry lobbying. The group argued that MA overpayments raise premiums for everyone on Medicare, including people in the traditional program.26 Its post described the January proposal as 0.9%, which conflicts with the 0.09% reported by CMS-focused trade press and wire services.2426 The direction of its criticism is still clear. The group also pointed out that the increase comes on top of separate policy changes expected to send an extra $18.6 billion to plans over a decade.26

CMS described the package as better payment accuracy. Medicare director Chris Klomp said it rewards competition on quality rather than coding.23 Insurers framed it as overdue recognition of rising medical costs. Trade group AHIP pointed to a period of "sharply rising medical costs."30

On balance, the critics have the stronger case on the core policy question. Delaying a more current risk model is a decision to keep paying on the basis of a coding baseline that is years out of date, and the market's reaction shows who benefits. Still, the unlinked chart review ban is a real, if limited, step against one of the program's best-documented coding practices.

What seniors see at open enrollment

In late September, CMS projected that the weighted average monthly MA premium will drop from $14.37 to $12.00, a 16.5% decline.41 The drug portion of MA plans with Part D coverage is expected to fall 38%, from $11.32 to $7.00.41 About eight in ten MA enrollees can keep their current plan at the same or a lower premium.50

The headline numbers hide some real costs. The 16.5% drop amounts to about $2.37 a month.42 Investopedia's analysis of state data found average MA premiums will rise in 19 states, with increases ranging from $0.29 a month in Wisconsin to $23.32 in Wyoming.49 The median in-network out-of-pocket limit increased from $6,500 to $7,100, and the average drug deductible in MA drug plans went from about $434 to $525.43

Plan exits matter more than the national totals suggest. KFF found the typical beneficiary will have 28 MA drug plans to choose from, down from 32. Molina and Group 1001 are leaving the MA drug plan market entirely.46 The number of counties with no MA drug plan open to general enrollment rose from 123 to 193, affecting 638,000 people.46 Florida, Ohio and Illinois lose the most plans by count.45 In Ohio alone, nearly 250,000 people will see their current plan disappear.44

This matches what analysts predicted in April: higher federal payments plus benefit cuts. The $13 billion helped keep premiums low and protect margins, while more of the cost moved to deductibles and out-of-pocket limits.

Enrollment figures differ depending on the source. CMS projects 34 million MA enrollees in 2027, about 47.4% of Medicare, but notes that plan projections have historically understated actual enrollment.41 Forbes reported that enrollment passed 35 million earlier this year.23 KFF puts MA's share at 55% of beneficiaries.48 Forbes also reports that the administration has explored automatically enrolling seniors into MA.48

Drug prices: real Medicare savings, higher Part D thresholds

The second round of negotiated drug prices under the Inflation Reduction Act also takes effect January 1, 2027, covering 15 Part D drugs.6 Ozempic, Rybelsus and Wegovy will share a negotiated price of $274 for a 30-day supply, a 71% discount from the 2024 list price of $959.8 CMS estimates the round will save taxpayers $12 billion and save enrollees $685 million in out-of-pocket costs.8

The discounts are large compared with past U.S. prices but less impressive compared with other countries. A study in the Journal of Managed Care & Specialty Pharmacy found the negotiated prices were a median 38% below estimated U.S. net prices. Even so, they remained a median 108% above average list prices in the reference countries used for most-favored-nation pricing.7

At the same time, the standard Part D deductible rises from $615 to $700, and the annual out-of-pocket cap goes from $2,100 to $2,400.27 Average stand-alone drug plan premiums will rise less than $1 as a temporary premium subsidy ends.50 That subsidy cost $9.8 billion over 2025 and 2026.41

Employers face the biggest cost increase since 2003

The contrast with job-based insurance is stark. Marsh projects that total health benefit costs per employee will rise 8.2% in 2027, the largest increase since 2003, even after employers cut benefits. Without cuts, the increase would be 11%.13 Aon projects 9.5%, which would push average costs above $19,000 per employee.14 The Business Group on Health puts the median at 9.2%.16 Every survey points the same way.

The causes overlap with the Medicare story. Marsh's actuaries attribute a full percentage point of 2027 cost growth to GLP-1 drugs.17 Marsh also blames provider consolidation and cost-shifting when government payments fall behind inflation.14 Employer drug costs are expected to rise 12% in 2026, and pharmacy now makes up 25% of employer health spending.16 Employer coverage of GLP-1s for obesity fell from 72% to 60%.16 Medicare's $274 negotiated semaglutide price does nothing for those plans.

Medicaid cuts begin the same day

On January 1, 2027, adults covered through Medicaid expansion must also document 80 hours a month of work, volunteering or school.31 CMS's own rule projects 2.3 million people will lose enrollment in 2027, rising to as many as 3.3 million in later years.31 Researchers funded by the Robert Wood Johnson Foundation estimate 4.9 million to 10.1 million people could lose coverage by 2028. They also found that 19% to 37% of people who already work could lose coverage because of paperwork.33

Those losses will affect private plans too. Hospitals facing more uninsured patients are expected to charge employers more to make up the lost revenue.20 People who lose Medicaid for failing the work requirement are generally ineligible for ACA marketplace subsidies.35

The bottom line

Taken together, 2027 shows clear priorities. Private Medicare insurers got a $13 billion increase and a reprieve from a tougher risk model. Workers face the steepest cost growth in more than two decades. Millions of low-income adults face new paperwork barriers. The negotiated drug prices are the one widely shared gain. Even there, higher Part D deductibles and caps, along with rising MA out-of-pocket limits, mean many seniors will pay more at the pharmacy counter even as their premiums fall.