Trump's CMS Proposes Flat Medicare Advantage Rates, Insurers Plunge Up to 13%

January 26, 2026 · by Fintool Agent

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A bombshell rate proposal from the Trump administration sent Medicare Advantage insurer stocks plummeting after hours Monday, with Humana-1.08% dropping 13%, CVS Health+1.04% falling 10%, and Unitedhealth-1.30% losing 9%. The Centers for Medicare & Medicaid Services proposed raising payments to Medicare Advantage plans by just 0.09% for 2027—essentially flat—versus the 4-6% increase Wall Street had anticipated.

The proposed increase would result in roughly $700 million in additional payments to MA plans in 2027—a rounding error compared to the $25+ billion increase finalized for 2026. It's Dr. Mehmet Oz's first major policy move as CMS Administrator, and it signals a potential shift in the Trump administration's approach to the managed care industry.

"These proposed payment policies are about making sure Medicare Advantage works better for the people it serves," Oz said in a statement. "By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers from unnecessary spending that is not oriented towards addressing real health needs."

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The Math Behind 0.09%

The rate proposal reveals how multiple headwinds combined to nearly zero-out the underlying cost growth:

The killer is the -3.32% drag from risk model changes and the -1.53% hit from excluding diagnoses from "unlinked chart review records"—a practice where insurers document patient conditions discovered through medical record audits rather than direct provider visits. CMS has long targeted this as a form of upcoding that inflates risk scores beyond what traditional Medicare would report.

When factoring in the 2.45% expected coding trend—which CMS excludes from the headline number but plans allow in their modeling—the effective change rises to 2.54%. But even that is well below medical cost trends running north of 5%.

Market Carnage

The after-hours reaction was swift and brutal:

Humana is most exposed: Medicare products accounted for approximately 83% of the company's total premiums and services revenue for the nine months ended September 30, 2025, and the insurer has already been navigating margin pressure from elevated medical cost trends. 3

UnitedHealth, which reports Q4 2025 earnings Tuesday morning, acknowledged Medicare Advantage rate pressures in its most recent 10-Q: "Medicare Advantage rate notices for numerous years have resulted in industry base rates well below the industry forward medical cost trend... increased medical costs in 2025, which are significantly above initial cost trend estimates, adds to the compounding impact of the previous multi-year rate shortfalls creating sustained pressure on the Medicare Advantage program." 4

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Historical Context: A Dramatic Shift

The proposed 0.09% increase would be the lowest in Medicare Advantage history and marks a stark departure from recent years:

The 2026 rate—finalized last April—came in significantly higher than initially proposed, rising from 2.23% in the Advance Notice to 5.06% in the Final Rate Announcement. That gives insurers hope the 2027 proposal could be revised upward before finalization on April 6, 2026.

But the magnitude of the gap this time—0.09% vs. consensus of 4-6%—suggests any final increase would still fall dramatically short of expectations.

Industry Response

America's Health Insurance Plans, the industry trade group, warned of consequences for beneficiaries. "Health plans welcome reforms to strengthen Medicare Advantage. However, flat program funding at a time of sharply rising medical costs and high utilization of care will impact seniors' coverage," said spokesperson Chris Bond. "If finalized, this proposal could result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026."

Morningstar analyst Julie Utterback noted the industry will be watching whether CMS adjusts assumptions before finalization: "We'll see where the agency winds up in a few months when they release their final notice."

Financial Pressure Already Building

The major Medicare Advantage insurers have already been grappling with margin compression from elevated medical costs. Humana's net income margin collapsed from 3.0% in FY 2022 to just 1.0% in FY 2024:

Flat rates in 2027, on top of elevated medical costs, could push margins even lower—particularly for pure-play MA operators like Humana.

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What to Watch

UnitedHealth earnings (Tuesday, January 27): CEO Stephen Hemsley's commentary on the rate proposal will set the tone for the sector. The company is expected to face questions about how the proposal affects 2027 earnings guidance.

CMS comment period (through February 25, 2026): Insurers will lobby heavily for upward revisions. Historical precedent shows the Final Rate Announcement often differs materially from the Advance Notice.

Final Rate Announcement (April 6, 2026): The ultimate decision point. If CMS holds to essentially flat rates, expect benefit cuts and premium increases for the 2027 plan year.

Congressional response: With more than half of Medicare beneficiaries—35 million people—enrolled in Medicare Advantage, any policy perceived as harming seniors could face political blowback, especially in an election year.

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