Why Is Medicare Advantage Premium Rising Just 0.09%? Explained

A newly introduced 0.09% raise in payments for Medicare Advantage (MA) plans has caused considerable concern within the senior healthcare sector. Although insurance companies caution about potential reductions in benefits, many are questioning: how did the Centers for Medicare and Medicaid Services (CMS) come up with such a small figure? The explanation stems from two major adjustments in the way payments are determined.

Grasping these modifications is essential to understanding why 35 million seniors could experience changes in their health insurance coverage in 2027. As Richard Kronick, a public health professor at the University of California, San Diego, explains, the minimal increase is not random but stems from particular policy changes designed to reduce what the government considers excessive payments.

Change 1: Updating the Information

The initial significant modification concerns the data utilized for cost estimation. For many years, the calculation relied on information from 2018-2019. The updated suggestion replaces this with more current data from 2023-2024. As per Kronick's analysis, merely transitioning to this newer dataset led to roughly a 3.5% decrease in the payment calculation. This indicates shifts in healthcare usage and expenses during the last few years.

Modification 2: Intensifying Scrutiny of 'Chart Review' Diagnoses

The second, more contentious modification focuses on a process called "risk adjustment" and the utilization of chart reviews. In Medicare Advantage, the government compensates insurance companies more for patients with more severe conditions to encourage them to enroll individuals with complicated health requirements. Insurers record these medical conditions (diagnoses) to calculate the "risk score" of their members. A higher risk score results in increased payments.

Nevertheless, the government has discovered that certain diagnoses are only based on "chart reviews"—an insurance company examining a patient's medical records—instead of a direct consultation with a physician where the condition is actually addressed. According to a 2024 report from the Office of Inspector General (OIG) within the Department of Health and Human Services, such diagnoses are "susceptible to abuse."

As per a study by KFF, these chart reviews are "the main factor behind increased payments, leading to an estimated $24 billion in extra Medicare Advantage payments in 2023." CMS is now implementing a policy to exclude diagnoses that aren't tied to a particular medical service, such as a physician visit. This adjustment results in an additional 1.5% decrease in payment, as noted by Kronick.

Putting the Numbers Together

By combining the 3.5% decrease from the data update with the 1.5% reduction from the chart review policy, you arrive at a total decrease of approximately 5%. When considering a typical upward movement in healthcare expenses of about 5%, these two factors largely offset one another, leading to the suggested 0.09% rise.

A representative from the CMS verified this reasoning, noting that the modifications aim to direct MA plans toward "creating value for their members instead of their billing procedures."