On Monday, the Centers for Medicare & Medicaid Services (CMS) released the calendar year (CY) 2027 Advance Notice, an annual document that outlines the proposed base payment rates for both Medicare Advantage (MA) and Medicare Part D plans. This year’s announcement is marked by an unusually low 0.09-percent expected average MA payment increase, a sharp contrast to the 5.06-percent update finalized last year for CY 2026. Driving this trend is a combination of proposed changes to diagnostic coding requirements, star ratings, and notably, the MA risk adjustment model. Let’s briefly unpack CMS’ most significant proposals.

MA plans are paid on a capitated basis. CMS sets county-level benchmarks that present the maximum amount a plan can receive to provide care for an average beneficiary in that area. These benchmarks are then adjusted to account for the expected cost of providing care for each enrollee based on their health status, as measured by a “risk score.” CMS calculates risk scores using the MA risk adjustment model, which scales the benchmark payments either up or down depending on the severity of an enrollee’s conditions and their anticipated health care costs.

In its CY2027 Advance Notice, CMS proposes revising the MA risk adjustment model by fully implementing the most recent clinical classification model (V28). The model would be recalibrated using diagnostic data from 2023 and expenditure data from 2024, reflecting a higher normalization factor, and resulting in lower relative payments. In tandem with several additional technical adjustments, CMS estimates that these proposed changes to the model would reduce risk-adjusted MA plan payments by more than $15 billion in CY 2027.

CMS is also proposing to refine diagnostic data sources used for risk adjustments, excluding diagnoses obtained from audio-only telehealth encounters, as well as discontinuing the use of unlinked Chart Review Records (CRRs). The latter proposal would require that every diagnostic code submitted for risk adjustment be associated with a date-specific clinician encounter, effectively preventing Medicare Advantage Organizations (MAOs) from adding codes that lack a corresponding clinician visit. CMS projects that eliminating the use of unlinked CRR diagnoses in risk score calculations would reduce MA payments by more than $7 billion.

It should be noted the proposed technical updates in the Advance Notice do not necessarily mean MA plans will see only a 0.09-percent revenue increase in 2027. CMS assumes that plans will partially offset the proposed payment reductions through a projected “risk score trend,” which reflects the natural increase in risk scores associated with aging enrollees, as well as anticipated changes in coding practices. When this projected trend is factored in, the expected average change in MA payments rises to 2.54 percent, much closer to levels observed in prior payment years. That said, the risk score trend is highly speculative and may overestimate how quickly MA plans will respond to the proposed technical changes. The table below shows the net impact of this projected risk score trend on expected average MA payment change, as well as how that net impact compares to previous final payment rate announcements.

Sources: CMS; McDermott+

While taking measures to improve MA plan integrity is laudable, some critics point out that unlinked CRRs serve a critical purpose, and that an abrupt elimination of the mechanism could disrupt accurate assessments of plan member health. CMS has previously recognized that MAOs may need to submit unlinked CRRs when enrolling new members, as these individuals frequently lack sufficient encounter data in their medical records from prior coverage. In practice, unlinked CRRs provide MAOs an essential risk-management tool, allowing them to address coding gaps or other errors and facilitating smoother transitions for MA beneficiaries switching between plans. CMS’ proposed elimination of unlinked CRRs would force MAOs to either implement new screening processes or assume greater financial risk when enrolling new members, potentially resulting in MA plan enrollment disparities.

To be clear, there is nothing wrong with strengthening MA payment accuracy and ensuring that each risk-adjusted diagnostic code is supported with defensible clinical data. The challenge is that available patient data is often contaminated by several levels of human and administrative error, leading to instances where the true cost of treating patients is not adequately reflected in the annual payment rates. Interoperability hurdles and administrative burdens remain significant problems in health care, and until fragmented health records and coding gaps are largely mitigated, CMS should reconsider eliminating unlinked CRRs that are used by MAOs to correct legitimate errors.

Even before the Advance Notice, several large MAOs have collaborated on proposals aimed at reducing industry reliance on chart reviews and similar risk-scoring practices. These efforts included changes to in-home clinical assessments, enhanced reporting requirements, and expanded audits. According to the insurers, these measures could have reduced a significant portion of the $15 billion in related risk-adjusted payments received between 2019 and 2021. That estimated impact is comparable in magnitude to the payment reductions associated with the proposed changes to the risk adjustment model in the CY 2027 Advance Notice.

So, what happens next? The public will have 30 days to submit comments on the proposed rules included in the Advance Notice. Judging by stakeholder reaction and investor sentiment, most stakeholders will likely urge that CMS either delays or scales back the technical reductions. CMS has until April 6, 2026, to announce the final MA capitation rates and payment policies that take effect in 2027. While it is too early to predict the final outcome, the Advance Notice makes clear that the administration is attempting to shift the MA and Part D programs, even at the risk of near-term disruptions to some of Medicare’s most popular coverage options.