CMS released the final CY 2027 Medicare Advantage and Part D Rate Announcement on April 7, 2026, locking in a 2.48% average payment increase worth roughly $13 billion above CY 2026 levels. The most consequential decision for pricing actuaries: CMS chose to defer the proposed V28 risk adjustment model recalibration from 2023/2024 data, preserving approximately 2.2 percentage points of plan payment relative to the advance notice proposal. With the June 1 bid deadline approximately six weeks out, this article decomposes the rate announcement into its pricing components and walks through the bid-to-benchmark framework actuaries must calibrate under the revised parameters.
Advance Notice to Final: The 239 Basis Point Swing
The January 2026 Advance Notice proposed a 0.09% average effective rate change, signaling near-flat revenue for CY 2027. The final at 2.48% represents a 239 basis point upward revision, the widest swing between proposed and final since the 2020 coding intensity recalibration. According to Georgetown's Center for Health Insurance Reforms, this continues an 11-year pattern in which 9 of 11 rate announcements revised upward from the advance notice, with an average revision of 1.26 percentage points.
The swing concentrates in two components: the effective growth rate update (+0.36 pp) and the risk adjustment model decision (+2.20 pp). Every other component moved modestly or not at all.
| Component | Advance Notice | Final | Change |
|---|---|---|---|
| Effective growth rate | +4.97% | +5.33% | +0.36 pp |
| Star Ratings | -0.03% | -0.03% | 0 |
| Risk model revision + normalization | -3.32% | -1.12% | +2.20 pp |
| Diagnosis source exclusion (chart review) | -1.78% | -1.53% | +0.25 pp |
| Rebasing / re-pricing | TBD | -0.17% | N/A |
| Net average change | +0.09% | +2.48% | +2.39 pp |
| With MA risk score trend | +2.54% | +4.98% | +2.44 pp |
Effective Growth Rate: From 4.97% to 5.33%
The effective growth rate measures the year-over-year change in per-capita Medicare fee-for-service (FFS) spending that underpins county-level MA benchmarks. CMS updated the projection with FFS expenditure data through Q4 2025, which came in stronger than the mid-2025 data available at the advance notice stage. The 0.36 percentage point increase from 4.97% to 5.33% reflects higher inpatient utilization and outpatient procedure volume in the second half of 2025, consistent with the post-pandemic normalization trends that UnitedHealth's Q1 2026 results subsequently confirmed.
For pricing actuaries, this growth rate flows directly into the county-level benchmark calculation. Each county benchmark equals a blend of local area FFS spending and the national average, weighted by the county's MA enrollment penetration. Counties with penetration above 25% weight the national average at 50%, while lower-penetration counties weight local spending more heavily. When the national effective growth rate rises 36 basis points, the benchmark lift is not uniform: high-FFS counties in the Northeast and Upper Midwest may see disproportionate dollar increases relative to low-FFS counties in the South.
Risk Adjustment Model Deferral: Why 2.2 Points of Payment Survived
The V28 CMS-HCC risk adjustment model maps ICD-10 diagnosis codes to hierarchical condition categories, grouping clinically related conditions into risk scores that predict expected medical expenditures. V28 reached full 100% phase-in during CY 2026, replacing the V24 model entirely. For CY 2027, CMS proposed recalibrating V28 using 2023 diagnosis data linked to 2024 expenditure data, replacing the original 2018/2019 calibration dataset.
The proposed recalibration carried a combined payment impact of -3.32%, reflecting both the new model coefficients and the updated normalization factor. The normalization factor adjusts for the empirical difference between MA and FFS coding intensity; as MA plans code more completely over time, the normalization factor increases (reducing payments) to maintain revenue neutrality with FFS. The advance notice normalization factor stood at 1.045.
CMS ultimately deferred the recalibration. The final announcement retains the 2024 CMS-HCC model (calibrated on 2018/2019 data) with the normalization factor alone producing a -1.12% impact. The net effect: plans retain approximately 2.2 percentage points of payment that the proposed model update would have removed.
From tracking successive risk model updates, the deferral likely reflects CMS concern about the 2023/2024 calibration dataset itself. The 2023 diagnosis year captures residual COVID-19 coding distortions, including pandemic-era HCC prevalence anomalies in respiratory, renal, and cardiovascular categories. Recalibrating on that data would have shifted model coefficients in ways that may not represent steady-state coding patterns, potentially destabilizing plan payments in the first year of application.
For pricing actuaries building CY 2027 bids, the deferral means that the HCC-level coefficients remain unchanged from CY 2026. Risk score projections based on 2025 encounter data can apply existing coefficient tables without a model-version adjustment. The key variable to model is the normalization factor at -1.12%, which should be applied uniformly to projected risk scores across the membership base.
Diagnosis Source Exclusions: Chart Reviews and Audio-Only Telehealth
CMS finalized two diagnosis source exclusions for CY 2027 risk adjustment, with a combined impact of -1.53% (softened from the proposed -1.78%).
Unlinked chart review records (CRRs). Starting with 2026 dates of service, diagnoses from chart reviews not linked to a specific beneficiary encounter are excluded from risk score calculations. A 2019 HHS OIG study estimated that unlinked CRRs generated $2.7 billion in potential overpayments in 2017 alone, and nearly 58% of MA contracts submitted unlinked CRRs as of 2022. CMS added an exception for beneficiaries who switch between MA organizations, recognizing that the receiving plan lacks access to the prior plan's claims history. This exception accounts for the 25 basis point difference between the proposed -1.78% and final -1.53% impacts.
Plan-level exposure varies dramatically. Organizations that rely heavily on retrospective chart review programs for HCC capture could face revenue reductions of 2% to 3% or more on affected members. Plans with prospective, encounter-based coding programs face minimal impact. Pricing actuaries should quantify the share of their book's coded risk scores attributable to CRR-sourced HCCs and model the per-member revenue reduction at the service area level.
Audio-only telehealth encounters. Diagnoses from encounters identified by modifier codes 93 and FQ are excluded from risk adjustment. The impact is embedded within the -1.53% total and is not separately quantified by CMS, but plans with significant rural or behavioral health populations that relied on audio-only visits for HCC documentation should assess the risk score gap.
The MA Bid-to-Benchmark Framework Under CY 2027 Parameters
With the rate announcement finalized, pricing actuaries build their Part A/B bids against county-level benchmarks that now incorporate the 5.33% effective growth rate. The core mechanics of the bid-to-benchmark calculation determine both plan revenue and supplemental benefit capacity.
Step 1: Benchmark determination. Each county receives a benchmark based on a blend of local FFS spending and the national average, adjusted by the county's payment quartile (ranging from 95% of FFS for the highest-spending quartile to 115% for the lowest). The quality bonus payment adds 5% to benchmarks for plans rated 4.0 stars or higher, plus an additional 5% in qualifying bonus counties with high MA enrollment.
Step 2: Bid submission. Plans submit bids representing their projected cost to deliver Part A/B benefits to a member of average health (1.0 risk score). The bid includes medical costs, administrative costs, and a target margin, but excludes supplemental benefits.
Step 3: Rebate calculation. When a plan bids below its applicable benchmark, the difference generates a rebate, with the percentage retained by the plan determined by Star Ratings:
- 3.0 stars or below: 50% of the bid-to-benchmark difference
- 3.5 to 4.0 stars: 65% of the difference
- 4.5 to 5.0 stars: 70% of the difference
The rebate funds supplemental benefits (dental, vision, hearing, fitness, reduced cost-sharing) and Part D premium subsidies. A plan rated 4.5 stars that bids $100 below its benchmark retains $70 for supplemental benefits; the same plan at 3.0 stars retains only $50.
Step 4: Risk-adjusted payment. CMS multiplies the bid by each enrolled member's individual risk score (from the V28 model, post-normalization) to determine actual payment. Members with risk scores above 1.0 generate payments above the bid; members below 1.0 generate less. The aggregate risk-adjusted payment plus the applicable rebate equals total plan revenue.
Under CY 2027 parameters, the critical pricing lever is the spread between medical cost trend assumptions and the 2.48% net revenue growth. Plans projecting medical cost trends of 5% to 6% face a 2.5 to 3.5 point gap between revenue growth and cost growth, creating negative operating leverage that must be offset through utilization management, network repricing, or supplemental benefit reductions.
Sensitivity Analysis for June 2026 Bids
Given the moving parts in this year's rate announcement, pricing actuaries should stress-test bids across several dimensions before the June 1 deadline.
Chart review exclusion by HCC category. Map each CRR-sourced diagnosis to its HCC and quantify the risk score contribution. Chronic conditions commonly captured through chart review, such as diabetes with complications (HCC 18/19), chronic kidney disease (HCC 329-331), and vascular disease (HCC 236-238), will show the largest per-member impact. The plan-switching exception applies only to members who changed MA organizations, so the offset is concentrated in plans with high churn rates.
Audio-only telehealth diagnosis removal. Identify members whose only HCC-supporting encounter for a given condition was audio-only (modifier 93 or FQ). Behavioral health HCCs are the most exposed category, particularly major depression (HCC 155) and substance use disorders (HCC 135-137). Plans with extensive telephonic behavioral health networks should model a risk score haircut of 0.5% to 1.5% on affected subpopulations.
Revenue-cost gap scenarios. Model three scenarios where medical cost trend exceeds the 2.48% revenue growth by 2, 3, and 4 percentage points respectively. At each scenario, calculate the bid-to-benchmark ratio required to maintain the current supplemental benefit package. Plans operating near the benchmark (bid-to-benchmark ratios above 0.95) have limited margin to absorb cost trend excess without cutting benefits or accepting negative margins. The table below illustrates the margin compression at each gap level for a plan with an 85% medical loss ratio baseline.
| Medical cost trend excess (over revenue growth) | Implied MLR shift | Margin impact (baseline 3% target) |
|---|---|---|
| +2 pp | +1.7 pp | Margin compresses to ~1.3% |
| +3 pp | +2.6 pp | Margin compresses to ~0.4% |
| +4 pp | +3.4 pp | Negative margin territory |
Star rating sensitivity. The CY 2027 Star Ratings overhaul removes 12 measures and shifts clinical measures from approximately 50% to 65% of the overall score. Plans at the 3.5 to 4.0 star boundary should model the rebate percentage impact of a half-star downgrade (from 65% to 50% rebate retention), which can translate to $30 to $60 PMPM in lost supplemental benefit capacity depending on the bid-to-benchmark spread.
Part D normalization split. The new separate normalization factors for MA-PD versus standalone PDP plans require distinct pricing assumptions in integrated bids. With the IRA's $2,000 out-of-pocket cap driving catastrophic-phase utilization approximately 22% above base-case projections (per early CY 2025 experience), the Part D component of integrated bids carries elevated uncertainty. Year-one Part D redesign data showed industry-aggregate bid-to-experience variance running roughly 14% unfavorable, a signal that CY 2027 Part D assumptions require recalibration from the ground up.
Why This Matters for Pricing Actuaries
The CY 2027 rate announcement creates a two-speed pricing environment. The headline 2.48% increase, combined with the risk model deferral, provides more breathing room than the January advance notice suggested. But the chart review exclusion, audio-only telehealth removal, and Star Ratings methodology changes introduce plan-specific headwinds that can easily overwhelm the headline tailwind for organizations with concentrated CRR exposure or borderline star ratings.
The practical implication for June bids: generic industry-average assumptions are insufficient. Plans need member-level risk score attribution analysis to quantify the chart review exclusion impact on their specific book. They need service-area-level benchmark modeling to capture the geographic variation in the 5.33% growth rate. And they need scenario analysis that honestly confronts the gap between 2.48% revenue growth and medical cost trends that multiple forecasters place at 7% to 8% for 2027.
Patterns we have seen across recent rate notice cycles suggest that the advance-notice-to-final swing has become a structural feature of the MA payment system, not an anomaly. Pricing actuaries who build their preliminary models on the advance notice and then wait for the final to adjust are leaving analytical capacity on the table. The more effective approach: build scenario trees in January that bracket the plausible final range, so that April adjustments slot into an existing framework rather than forcing a ground-up rebuild six weeks before bid submission.