To Usher in the new year, the Centers for Medicare & Medicaid Services (CMS) released a draft of the 2026 Advance Notice, describing the Methodological Changes for Calendar Year (CY) 2026 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies. This draft serves as a precursor to the final notice, which will be published on or before April 7, 2025. Stakeholders are invited to provide comments on the proposed changes by 11:59 PM ET on February 10, 2025.
Proposed Payment Changes in the 2026 Advance Notice
- Net Increase in MA Payments: CMS proposes a net increase of 4.33% (over $21 billion) in MA payments to plans year-over-year for CY 2026, compared to 3.7% ($16 billion) for 2025.
- Factors Influencing Capitation Payments: Medicare capitation payments are largely determined by:
- Projected growth rate
- Risk adjustments
- Quality performance of the plan
Final rates will depend on the average geographic adjustment (AGA) index and will be available in the CY 2026 Rate Announcement.
Key Updates in the 2026 Advance Notice
1. Effective Growth Rate
The Effective Growth Rate for 2026 is projected at 5.93%, up from 2.33% in 2025. This increase is primarily driven by higher Medicare fee-for-service (FFS) per capita costs. Additionally, CMS proposes applying 100% of the technical adjustment for indirect and direct medical education costs, completing a three-year phase-in.
2. Part C Risk Adjustment
- Completion of the 2024 CMS-HCC Risk Adjustment Model: For CY 2026, CMS will calculate 100% of risk scores using the 2024 CMS-HCC model (v28), utilizing data from 2018 diagnoses and 2019 expenditures.
- Two-Year Risk Score Trend Calculation: CMS proposes using 2022-2023 risk score trends to calculate the MA risk score, given limited post-pandemic data availability.
3. Part D Risk Adjustment
CMS proposes updates to the Part D risk adjustment model, accounting for changes from the Inflation Reduction Act, including:
- The Manufacturer Discount Program (10% in the initial phase, 20% in the catastrophic phase)
- An updated out-of-pocket threshold of $2,100 (from $2,000 in 2025)
- Maximum Fair Price (MFP) for 10 drugs under the Medicare Drug Price Negotiation Program
- Calibration using 2022 diagnoses and 2023 costs to enhance bid accuracy for CY 2026.
Implications for STAR Ratings in the Advance Notice
CMS continues to evolve the Part C and D STAR Ratings Program:
- Seeking feedback on measure updates and new measure concepts focused on clinical care, outcomes, and member experience.
- Proposing updates to display measures and exploring the addition of geography to the Health Equity Index reward.
“Universal Foundation” identifies foundational measures in specific settings and populations to support further measure alignment across CMS programs as applicable. It is being utilized to simplify measures, focus provider attention, reduce burden, and identify care disparities.
Submitting Comments on the 2026 Advance Notice
Stakeholders must submit their comments on the Advance Notice by 11:59 PM ET on February 10, 2025.
Inovaare Solutions for MA Plans
Inovaare provides tools and expertise to help MA plans adapt to regulatory changes proposed in the 2026 Advance Notice. With our solutions, plans can:
- Scrub reporting deliverables before CMS submission
- Focus on payment anomalies rather than debugging data
For inquiries about the 2026 Advance Notice, contact us at 408.850.2235.