Two recent announcements from the Centers for Medicare & Medicaid Services (CMS) offer early indicators as to how the Trump administration, including CMS administrator Dr. Mehmet Oz, may approach the Medicare Advantage (MA) industry over the next four years.
- First, on April 4, CMS issued the Contract Year (CY) 2026 Medicare Advantage and Part D Final Rule (Final Rule), which declined to adopt proposed changes that would have increased guardrails around MA organizations' (MAO) use of artificial intelligence (AI) and required disaggregation of annual health equity analyses while deferring decisions on proposals to expand the definition of marketing and enhance rules on internal coverage criteria.
- Three days later, on April 7, CMS published the CY 2026 Rate Announcement, which CMS estimates will increase payments to MAOs by 5.06% in 2026, the highest amount in more than a decade and more than twice as much as the 2.23% increase proposed initially. The increase reflects in large part the impact of the net effective growth rate and underscores the anticipated impact changes to the risk adjustment diagnosis coding model will have on reimbursement.
Industry leaders largely welcomed the news and the share values for major insurance plans jumped in the hours following the announcement. However, there is some concern that the increase may only partially address the inflationary pressures and financial challenges impacting the industry, particularly after a series of Biden-era rule changes resulted in reduced reimbursement while healthcare costs continued to rise, creating a confluence that forced many insurers to reduce or eliminate popular supplemental benefits (e.g., vision, dental, and hearing aid coverage) on which many seniors had come to rely.
Despite many unknowns, including continued regulatory oversight and potential increased enforcement, the Final Rule and CY 2026 rate increase signals future program stability amid evolving healthcare needs and potentially opens the door to a cautious reinvestment in benefits and other areas impacted by prior cuts.
Below is a more detailed summary of the CY 2026 Final Rule, including an overview of the finalized updates to payment policies and program structures for the 2026 plan year (PY), all of which will require significant resources and coordination to operationalize in the coming year. Notable proposed changes that were finalized include those related to organization determinations regarding inpatient hospital claims, the Medicare Prescription Payment Plan, dual eligible special needs plans (D-SNPs), and Star Ratings. CMS also declined to adopt proposals to require expanded Part D coverage of anti-obesity medication coverage for weight loss.
MA Organization Determinations in Inpatient Settings and MA Appeals
Noting concerns with previously approved inpatient hospital admissions later being inappropriately revised or rescinded, the Final Rule limits the ability of MA plans to reopen and modify past decisions approving inpatient admissions based on clinical information received after the initial organization determination. Instead, MA plans can reopen approved admissions only for obvious error or fraud. CMS anticipates these changes could decrease the number of inpatient downgrades that could create a non-quantified cost to MA organizations (and potentially passed on to Medicare).
The Final Rule clarifies that all plan decisions affecting the provision of care are "organization determinations," whether made before, during, or after the provision of services and, therefore, MA appeal rules apply to adverse plan decisions at all stages. CMS also codified existing guidance requiring MA plans to provide notice of a coverage decision to both an enrollee and their provider when the provider submits a request for the enrollee on the basis that providers may be best suited to receive, explain, and timely act on such decision on the enrollee's behalf. The Final Rule also clarifies that an enrollee's liability to pay for services cannot be determined until the MA plan makes a determination on the submitted claim.
Non-Allowable Supplemental Benefits for the Chronically Ill (SSBCI)
Existing regulations allow MA plans to offer chronically ill MA enrollees supplemental benefits (SSBCI) that have "a reasonable expectation of improving or maintaining the health or overall function of the enrollee," even if they are not "primarily health related." However, in the Final Rule, CMS codified a non-exhaustive list of certain items or services that are not allowable SSBCI. These include:
- Cosmetic procedures that do not "extend upon Traditional Medicare coverage" (e.g., cosmetic treatments for facial lines, atrophy of collagen and fat, and bone loss due to aging).
- Hospital indemnity insurance.
- Funeral planning and expenses.
- Life insurance.
- Alcohol, tobacco, and cannabis products.
- Broad membership programs which include multiple unrelated services and discounts.
- Non-healthy food.
In addition, CMS noted that generic memberships are not permissible SSBCI because they cannot be limited to items or services that meet SSBCI criteria. However, CMS left room for an MA organization to contract with retailers to offer covered benefits to enrollees "via a restricted debit card," for example.
Changes to Dual Eligible Special Needs Plans
To address healthcare fragmentation impacting beneficiaries dually eligible for Medicare and Medicaid, CMS finalized a requirement that, effective for CY 2027, applicable integrated plan (AIP) D-SNPs must issue integrated member identification (ID) cards used as the beneficiary's identification for both Medicare and Medicaid services. Beginning with CY 2027, AIP D-SNPs must also conduct an integrated health risk assessment (HRA) for Medicare and Medicaid enrollees, rather than separate HRAs for each program. The integrated HRA requirement will apply on October 1, 2026, because HRAs may be conducted within 90 days before or after the effective date of enrollment. The Final Rule also codifies timeframes by which all SNPs must conduct HRAs and individualized care plans.
Other Finalized Proposals
CMS finalized other proposed changes, including provisions implementing the Inflation Reduction Act of 2022 (IRA) requirements. Examples include:
- Vaccine Cost-Sharing. From PY 2023 onward, the Part D deductible does not apply to, and there is no cost sharing for, Part D-covered vaccines recommended by the Advisory Committee on Immunization Practices (ACIP).
- Insulin Cost-Sharing. From PY 2023 onward, the Part D deductible also does not apply to covered insulin products and the Part D cost-sharing amount for a one-month supply of insulin is capped at the "applicable copayment amount," i.e., $35 for 2023 through 2025, and, for 2025 and beyond, the lesser of $35, 25% of the maximum fair price established for the covered insulin product, or 25% of the negotiated price under the Prescription Drug Plan (PDP) or MA Prescription Drug Plan (MA-PD).
- Medicare Prescription Payment Plan. The Final Rule codifies, with a few modifications, guidance requiring that PDPs and MA-PDs offer enrollees the option to pay their out-of-pocket prescription drug costs in equal monthly installments, rather than as a lump sum at the point of sale.
- Medicare Transaction Facilitator Requirements for Network Pharmacy Agreements. Part D sponsors' network participation agreements with contracting pharmacies must now require such pharmacies to be enrolled in the Medicare Drug Price Negotiation Program's Medicare Transaction Facilitator Data Module (MTF DM). Such pharmacies must also certify the accuracy and completeness of their enrollment in the MTF DM.
Provisions Not Finalized or Deferred
As noted above, CMS did not finalize the following major proposals in the Final Rule:
- Disaggregating Annual Health Equity Analyses. This proposal would have required MA plans to report metrics by each covered item or service rather than aggregated for all items and services for required annual health equity analyses regarding the use of prior authorization.
- Artificial Intelligence Guardrails. CMS proposed "guardrails" to ensure that MA organizations use AI and autonomous decision tools in a fair and equitable manner consistent with antidiscrimination regulations and without hindering patient access to medically necessary services. In declining to adopt this proposal, CMS acknowledged broad interest in regulating AI and advised that it will "consider the extent to which it may be appropriate to engage in future rulemaking in this area."
- Part D Coverage of Anti-Obesity Medications. CMS proposed a reinterpretation of existing exclusions allowing Part D coverage of medications when used to treat obesity, which would also have applied to Medicaid.
In addition, CMS noted that it deferred decisions regarding whether to finalize certain proposals to subsequent rulemakings, including proposals related to cost-sharing amounts applicable to certain behavioral health services, expansion of the scope of the definition of "marketing," and further defining "internal coverage criteria," among others.
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