CMS announced that MA plans will receive a 5.06% increase in their benchmark payment rate for 2026, a significant increase over the Biden-era proposal. Separately, the agency proposed a 2.4% rate increase for inpatient hospitals.
The 5.06% increase is the largest annual rate increase enacted for MA plans in the past decade, and it represents a massive increase over the 2.2% increase proposed by the Biden administration before it left office in January.
According to CMS, the increase reflects new data on FFS expenditures through Q4 2024 that were not factored into the original proposal.
The effective growth rate is 9.04%, which is significantly higher than the 5.93% increase projected in the CY2026 Advance Notice.
Payer stocks jumped on the news, with significant single-day increases for UHG (6%), CVS (9%), Elevance (8%), and Humana (16%).
Insurtech’s Clover Health and Alignment Healthcare also saw stock price increases following the announcement. More dramatically, value-based care enabler Agilon Health saw its stock price surge by 45% over the week following the announcement.
In the MA final rule, the Trump administration also announced it was reversing the Biden administration’s decision to cover GLP-1 weight loss drugs under Medicare Part D and Medicaid.
Under the original proposal, these drugs would have been covered beginning in CY2026.
The MA final rule also removed other Biden proposals such as an annual health equity analysis of utilization management policies and new guardrails on the use of AI in MA.
Separately, CMS proposed a 2.4% Medicare rate increase for inpatient hospitals in FY2026.
In a statement, the American Hospital Association said it was disappointed with an “inadequate” increase that would hurt financial sustainability, especially for hospitals in rural and underserved communities. AHA also flagged the proposed continuation of the mandatory TEAM payment model for surgeries, expressing concerns about excessive risk while reiterating their support for value-based and alternative payment models.
The proposed rule also includes requests for information related to the new administration’s agenda, including input on how the agency can streamline regulations in line with President Trump’s executive orders, and a request for feedback on digital quality measurement.
So What?
Prior to this announcement, MA payers were facing significant headwinds in terms of both their utilization/cost trend and reimbursement trend (with policymakers increasingly adopting the view that MA plans are overpaid relative to FFS). MA plans responded to these pressures by pulling back on supplemental benefits and engaging in more aggressive behavior with respect to prior authorizations and denials. The newly finalized 5.1% increase will relieve some of that pressure, which could in turn influence payer behavior (especially if payers once again compete for market share by offering more generous benefits).
The rate increase could be an early sign that the Trump administration will take a friendlier approach to MA than the Biden administration. We’ve speculated before that Dr. Mehmet Oz, Trump’s recently confirmed pick for CMS administrator, has a favorable view of MA given his past statements.
When we originally covered Biden’s decision to offer Medicare/Medicaid coverage for GLP-1 weight loss medication in December, we speculated lower costs for seniors could increase demand and improve medication adherence. This could have helped address chronic conditions associated with obesity and made more patients eligible for surgeries at ASCs.
Private insurers often follow Medicare’s lead for their coverage decisions, so the Trump administration’s reversal could have knock-on effects for commercial coverage of GLP-1s.
While the proposed payment increase for inpatient hospitals is disappointing, the rule’s requests for information offer health systems an opportunity to find common ground with the new administration and shape its agenda.
Health systems face a significant and costly regulatory burden, and the administration’s deregulatory agenda could help reduce those costs, easing some of the margin pressure from reimbursement headwinds.
The agency also requested input on patient nutrition and wellness, giving health systems an opening to influence the administration’s “Make America Health Again” initiative.