Medicare Official Defends Slim Hike in Reimbursements, Says Program Must Be Cost-Effective

Health insurers’ stock prices fell the day after the federal government proposed changes to Medicare Advantage plans.

Mehmet Oz, administrator for the Centers for Medicare and Medicaid Services, speaks as (L–R) Director of Medicare Chris Klomp, Pfizer CEO Albert Bourla, Secretary of Health and Human Services Robert F. Kennedy Jr., and President Donald Trump look on after Trump announced a deal with Pfizer to lower Medicaid drug prices in the Oval Office on Sept. 30, 2025. Win McNamee/Getty Images

Medicare Advantage remains a critical program but must be cost-effective, a Medicare official said one day after the stock market reacted to news that reimbursement rates would remain flat for 2027.

“We continue to believe Medicare Advantage will and must play an important role in the future of Medicare,” Chris Klomp, director of Medicare and deputy administrator at the Centers for Medicare and Medicaid Services (CMS), said in a Jan. 27 teleconference with Paragon Health Institute.

“We are focused on ensuring that it continues to provide excellent value to our beneficiaries—68 million beneficiaries whom we’re charged to serve.”

CMS proposed a payment increase of 0.09 percent, which translates to more than $700 million in federal payments to Medicare insurers for the 2027 calendar year, effective Oct. 1, 2026.

This increase was relatively flat compared with previous years: It was a 5.06 percent increase for the 2026 calendar year and a 3.7 percent increase for 2025.

“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” CMS Administrator Dr. Mehmet Oz said.

Impact on Insurers

Health insurers’ stock prices fell the day after the announcement.

Share prices of UnitedHealth Group, the nation’s leading Medicare Advantage provider, plummeted by nearly 20 percent by market close on Jan. 27.

In its financial report released on Jan. 27, UnitedHealth Group also revealed a sharp decline in earnings. The company’s fourth-quarter profit for 2025 plummeted to $10 million—a drop from the $5.5 billion recorded during the same period in 2024.

For the full year of 2025, UnitedHealth reported a total profit of $12.1 billion, down from the $14.4 billion earned in 2024.

Humana share prices plunged by 21 percent. UnitedHealth Group and Humana together account for nearly half of Medicare Advantage enrollees.

The share prices of both CVS Health and Elevance Health experienced a nearly 17 percent decrease. Centene share prices were down by more than 11 percent, while Molina Healthcare share prices were down by 9 percent.

Proposed Changes

Medicare will also update the risk adjustment model—the formula used to determine how sick an insurance plan’s members are and, therefore, how much the plan will be paid to provide care.

One of the biggest changes in the risk adjustment model involves unlinked records. In the past, plans could sometimes report a diagnosis without linking it to a specific doctor’s visit. Adding a diagnosis could increase the amount that Medicare reimburses the insurer, even if no additional care is provided to the patient.

Medicare has proposed a rule that will exclude diagnoses that are not tied to a specific doctor’s visit or medical service.

This modification is to ensure that Medicare Advantage program incentives “better reward activities that actually improve beneficiary care and [are] cost-effective,” Klomp said.

Medicare will realize about $7.12 billion in net savings by no longer considering unlinked diagnoses.

The agency has also proposed no longer including diagnoses that come from audio-only appointments.

“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,” Oz said in a statement.

Recent Claims

The changes come on the heels of a Jan. 12 Senate report revealing that UnitedHealth Group has been using high-tech scanners and a team of specialists to capture profitable, extra diagnoses in beneficiaries to maximize federal payments.

Sen. Chuck Grassley (R-Iowa) said in a statement: “My investigation has shown UnitedHealth Group appears to be gaming the system and abusing the risk adjustment process to turn a steep profit. Taxpayers and patients deserve accurate, clear-cut, and fair risk adjustment processes.”

Another health care system, Kaiser Permanente, allegedly pressured doctors to add false diagnoses to patient records, boosting federal Medicare payments by about $1 billion over nine years. Kaiser agreed in January to pay $556 million to resolve allegations without admitting wrongdoing.

Klomp said there has “been a breach of trust” in Medicare Advantage over the past several years.

“If you find that a beneficiary is sicker, [and] you code something in a diagnosis, we want to see follow-on care that you help get that beneficiary healthier,” he said. “We do not want risk adjustment to be a source of competitive advantage.”

UnitedHealth Group and Kaiser Permanente did not respond to requests for comment on the CMS announcement.