CMS Releases 2027 Medicare Advantage and Part D Advance Notice: What Plans Need to Know

February 05, 2026  |  Medicare Advantage & Part D Policy Update

Mike Rawaan, Founder and Managing Director

On January 26, 2026, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year 2027 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies.^[1] This annual announcement outlines proposed payment rate updates and technical changes that will significantly impact how Medicare Advantage and Part D plans operate and receive payment in 2027.

Key Takeaway: Net payment increase of 0.09%, translating to over $700 million in MA payments^[1]

When accounting for expected risk score trends driven by coding practices and population changes, the expected average change in payments will reach 2.54%.^[1]

 

Payment Impact Overview

The proposed policies project a modest net average year-over-year payment increase of 0.09 percent, representing over $700 million in additional Medicare Advantage payments to plans in CY 2027.^[1] However, when CMS factors in the estimated risk score trend in MA driven by coding practices and population changes, the expected average change in payments increases to 2.54%.^[1] CMS expects MA risk scores to increase on average by 2.45% due to underlying coding trend alone.^[1]

A 2.54% increase is still well below previous years. MA plans enjoyed 5.06% increase in 2026 and an average increase of 5.15% over the past four years.

Major Policy Changes for 2027

Part C Risk Adjustment Model Transformation

CMS is proposing substantial updates to the Part C risk adjustment model that will require significant operational changes from Medicare Advantage organizations. The agency is working toward a risk adjustment system guided by three core principles: simplicity to reduce administrative burden, competition on value creation for patients, and payment accuracy that reflects beneficiary health risk while facilitating efficient resource use.^[1]

The proposed model continues using version 28 (V28) of the clinical classification system introduced in 2024, but with critical updates.^[1] Most notably, CMS is recalibrating the model using significantly more recent data—2023 diagnoses and 2024 expenditures—replacing the 2018/2019 data baseline.^[1] This update ensures that payments more accurately reflect current costs associated with various diseases, conditions, and demographic characteristics.

Two major exclusions will impact risk scoring: First, the model will exclude diagnoses from audio-only encounters.^[1] Second, and perhaps most significantly, CMS proposes to exclude diagnosis information from unlinked Chart Review Records (CRRs)—diagnosis information not associated with a specific beneficiary encounter—from risk score calculation starting in CY 2027.^[1] While MA organizations may continue submitting diagnoses using unlinked CRRs, those diagnoses will no longer factor into risk score calculations.^[1]

Part D Risk Adjustment Model Updates

The Part D risk adjustment model receives its own set of important updates to reflect the Inflation Reduction Act (IRA) changes to the Part D benefit taking effect in CY 2027, including increased manufacturer discounts for specified small manufacturers with phase-in periods.^[1]  Like the Part C model, CMS is calibrating the Part D model using more recent data years—2023 diagnoses and 2024 costs—and excluding diagnoses from audio-only services and unlinked CRRs for consistency.^[1]

A significant methodological change aims to improve predictive accuracy: CMS proposes calibrating the model separately for MA prescription drug (MA-PD) plans and standalone prescription drug plans (PDPs), while continuing to calculate separate normalization factors for each population.^[1] These updates are essential for plan sponsors to develop accurate bids for CY 2027.^[1]

PACE Organization Transition Continues

For Program of All Inclusive Care for the Elderly (PACE) organizations, CMS continues the transition from the legacy Risk Adjustment Processing System (RAPS) to the encounter data system (EDS).^[1] For CY 2027 payments, CMS proposes continuing the phased approach with a 50/50 risk score blend—50% calculated using the 2017 CMS-HCC model and 50% using the proposed 2027 CMS-HCC model.^[1] This ensures PACE organization risk scores reflect recent updates while managing the transition carefully.

Puerto Rico Stability Measures

Given that Puerto Rico has far greater MA penetration than any other state or territory, CMS proposes continuing current policies to support program stability in the Commonwealth.^[1] These include basing MA county rates on the relatively higher costs of individuals in Original Medicare who have both Medicare Parts A and B, and applying an adjustment regarding the propensity of individuals with zero claims.^[1]

Payment Component Breakdown

The year-to-year percentage changes reveal how different policy components affect overall payment:^[1]

Star Ratings Updates and Future Measures

The Advance Notice includes Star Ratings updates consistent with regulations at 42 C.F.R. §§ 422.164, 422.166, 423.184, and 423.186.^[1]CMS provides the list of eligible disasters for adjustment, non-substantive measure specification updates, and measures included in the Part C and D improvement measures and Categorical Adjustment Index for 2027 Star Ratings.^[1]

CMS is soliciting initial feedback on substantive measure specification updates, comments on new measure concepts, and input on updates to display measures (publicly reported but not included in Star Ratings).^[1] All substantive specification changes, new measures, and methodological changes must go through rulemaking.^[1]

Strategic Implications

These proposed changes reflect CMS's commitment to Medicare Advantage program sustainability and payment accuracy. The shift to more recent data years (2023/2024) means risk adjustment will better reflect current disease costs and treatment patterns. The exclusion of audio-only encounters and unlinked chart reviews addresses concerns about the accuracy of diagnosis reporting and data quality.

For Medicare Advantage organizations, the relatively modest 0.09% net payment increase—even with the 2.54% expected change when including risk score trends—signals continued focus on efficiency and value. Plans will need to carefully balance the impacts of the 4.97% effective growth rate against the -3.32% from risk model revisions and the -1.53% from diagnosis source exclusions.

The separate calibration of Part D models for MA-PD versus standalone PDPs acknowledges the different utilization patterns and cost structures between integrated and standalone prescription drug coverage. This should improve payment accuracy and reduce concerns about cross-subsidization.

Next Steps and Timeline

The comment period for the CY 2027 Advance Notice closes February 25, 2026 at 11:59 PM Eastern Time.^[1] Medicare Advantage organizations, industry associations, providers, and other stakeholders should carefully review the 200+ page technical document and submit detailed comments on provisions that will impact their operations.

CMS will review all submitted comments and publish the final CY 2027 Rate Announcement no later than April 6, 2026.^[1] The Rate Announcement will include finalized payment methodologies, the rebasing/re-pricing impact dependent on the average geographic adjustment index, and responses to significant comments received.

Plans should use the period between now and the Rate Announcement to model various scenarios, engage with CMS through the comment process, and prepare operational changes needed for CY 2027 implementation.

Sources

^[1] Centers for Medicare & Medicaid Services. (January 26, 2026). 2027 Medicare Advantage and Part D Advance Notice. Retrieved from https://www.cms.gov/newsroom/fact-sheets/2027-medicare-advantage-part-d-advance-notice

About Covalence Health: We help Medicare Advantage plans, healthcare providers, and investors navigate complex CMS policy changes and implement effective compliance and strategic responses. Contact us for a detailed analysis of how these changes impact your organization.

The full CY 2027 Advance Notice is available at: https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/announcements-and-documents