CMS' Medicare Advantage Final Rule Raises Stakes for Payers, Providers

A stronger-than-expected rate increase benefits health plan funding, but updates to the star ratings system aims to create more incentive for clinical performance.

CMS has finalized its Medicare Advantage (MA) payment rates, boosting insurer funding more than expected while pairing the increase with an overhauled star ratings system that emphasizes clinical outcomes for both payers and providers.

The agency set the final MA rate increase at 2.48% for 2027, well above the 0.09% proposed in January, amounting to more than $13 billion in additional payments to insurers next year. The increase provides a clearer revenue picture for insurers after months of industry concern about inadequate funding.

CMS said its decision reflects higher projected costs and policy adjustments, including a pause on certain risk model changes.

Even so, provider groups warn that the increase may not fully offset underlying cost pressures. The American Medical Group Association (AMGA) expressed concern that the payment update “does not address growing beneficiary demand or the significant inflationary pressures facing medical group practices and integrated health systems.”

When MA payments fail to keep pace with the cost of delivering care, health plans are forced to make tradeoffs such as scaling back supplemental benefits, raising cost-sharing, and in some cases exiting markets altogether, AMGA highlighted. Those pressures, the group argues, are already playing out and risk accelerating if funding and medical cost trends remain misaligned.

“This update does not reflect the economic realities our members face every day,” AMGA president and CEO Jerry Penso, MD, said in a statement. “Workforce costs are rising, supplies are more expensive, and delivering high-quality, coordinated care requires sustained investment.”

Alongside the rate announcement, CMS finalized changes to the star ratings system. The agency is removing 11 largely administrative measures and eliminating the previously called Health Equity Index reward, while maintaining the longstanding reward factor tied to consistent performance. The revised framework places greater weight on clinical outcomes, patient experience, and measures such as depression screening and follow-up.

As a result of the revamped star ratings, MA insurers will receive $18.6 billion from 2027 through 20236, representing a sizeable jump from the $13.2 billion CMS previously estimated when the rule was proposed in November.

At the same time, the removal of plateaued measures reduces scoring flexibility and makes insurers more sensitive to performance based on outcomes.

That pressure is expected to flow to providers. As health plans work to protect star ratings and bonus revenue, contracts will increasingly tie reimbursement to quality metrics and outcomes, upping the financial exposure for providers.

“We are fundamentally shifting our approach to quality,” Chris Klomp, director of the Center for Medicare and chief counselor of the U.S. Department of Health and Human Services, said in a statement. “This isn't just about adjusting measures; it's about redefining success. We are moving away from a system that incentivizes administrative box-checking and are instead laser-focused on what truly matters: the clinical outcomes and health of our beneficiaries. This is a critical first step toward a more efficient, effective, and patient-first healthcare system.”

In effect, CMS’ final updates to MA stabilize the program’s financial outlook in the near term, but tightens the link between clinical performance and financial results for payer and provider organizations.