Medicare Advantage insurers will likely continue to scale back supplemental benefits and exit certain markets if CMS finalizes its proposed 0.09% payment increase for 2027, according to a Jan. 30 analysis from Fitch Ratings.
“Depending on finalized payment rate and expected utilization trends, we would expect lower government reimbursement levels to result in higher premiums, reduced benefits, and less coverage options as insurers further rationalize their products and market footprints,” Fitch said.
The proposed rate, released Jan. 26, was far below the 4% to 6% increase Wall Street analysts had expected and short of the 5.06% boost CMS finalized for 2026. The announcement triggered a stock selloff that wiped out nearly $100 billion in market value, with shares of UnitedHealth and Humana falling about 20%.
Fitch noted that most large MA insurers target operating margins below 5% but have generally failed to hit that target over the past two years. The rating agency expects insurers to respond by cutting supplemental benefits, intensifying cost management and reducing PPO offerings.
CMS often revises its advance notice rates higher before finalization. Last year, the agency more than doubled its initial proposal to reach the final 5.06% rate. But Fitch warned that even a rate matching last year’s increase would be “unlikely to fully offset higher claims costs and potential regulatory changes, including a likely directive to reduce prior authorization requirements.”
Major MA insurers are already signaling retrenchment. UnitedHealthcare said it expects to lose up to 1.4 million MA members in 2026 and may pull back further on benefits and geography if the rates are finalized as proposed. Elevance Health said it expects MA membership to decline in the high teens percentage range this year.
Elevance CEO Gail Boudreaux said during the company’s Jan. 28 earnings call that the flat funding proposal “just doesn’t keep pace with the current medical cost and utilization trends.”
“If funding consistently lags the reality on the ground, the levers that we have are benefits, networks, premiums, exiting geographies,” Ms. Boudreaux said. “And quite frankly, that’s not good for seniors, and I don’t think it’s good for the program.
The comment period on the proposed rate closes Feb. 25, with the final notice expected by April 6.
