CMS Finalizes 2026 Medicare Advantage and Part D Payment Rates: What You Need to Know

The Centers for Medicare & Medicaid Services (CMS) has released its final payment rates for Medicare Advantage (MA) and Part D plans for 2026, revealing a substantial 5.06% increase in MA payments. This translates to over $25 billion in additional funding compared to 2025 levels. The announcement comes after extensive stakeholder consultation and incorporates the most recent data through the fourth quarter of 2024.

Understanding the 2026 Payment Rate Changes

The final payment rates include several significant adjustments from the preliminary projections outlined in the Advance Notice. Most notably, the Effective Growth Rate—a critical factor in determining overall payment increases—jumped from an initially proposed 5.93% to a much more substantial 9.04% in the final announcement.

Other key components that influenced the final 5.06% payment rate increase include:

• A -0.28% adjustment resulting from rebasing and re-pricing efforts

• A consistent -0.69% impact from previously announced Star Ratings changes

• A -3.01% effect from risk model revisions and Fee-for-Service (FFS) normalization factors

This final payment increase of 5.06% represents a considerable improvement from the 2.23% increase originally proposed in the Advance Notice. It's important to note that these figures don't factor in the underlying Medicare Advantage coding trend, which CMS estimates will further increase risk scores by approximately 2.10% in 2026.

Risk Adjustment Model Changes Reach Full Implementation

The 2026 announcement marks the completion of CMS's three-year transition to the 2024 CMS-HCC risk adjustment model. Under the final rule:

• 100% of risk scores will now utilize the updated 2024 model, ending the phased implementation that began in 2024

• CMS will continue employing multiple linear regression methodology for determining FFS normalization factors

• For Programs of All-Inclusive Care for the Elderly (PACE) organizations, CMS has crafted a special transition approach that blends 10% of the 2024 model with 90% of the 2017 model, recognizing the unique challenges these organizations face in transitioning to encounter data submission requirements

This full implementation represents the culmination of efforts to improve payment accuracy through more sophisticated risk adjustment methodologies.

Special Considerations for Puerto Rico

The 2026 Rate Announcement includes targeted provisions to address the unique healthcare landscape in Puerto Rico:

• Medicare Advantage county rates will be calculated based on the higher costs associated with FFS beneficiaries who maintain both Parts A and B coverage

• An adjustment factor will account for the proportion of individuals with zero claims

• CMS has committed to ongoing evaluation and potential refinement of Puerto Rico's rate methodology

These adjustments aim to create more equitable payment structures that reflect the territory's distinctive healthcare delivery and utilization patterns.

Implementing the Inflation Reduction Act: Transforming Part D

The 2026 payment year marks a critical implementation milestone for several transformative provisions from the Inflation Reduction Act (IRA) that will fundamentally reshape the Part D program:

Catastrophic Coverage Redesign

The establishment of a $2,100 catastrophic phase threshold represents a landmark change for beneficiaries, who will face no cost-sharing requirements once they exceed this amount. This provides unprecedented financial protection for those with high medication costs.

Insulin Cost Containment

Building on previous affordability measures, insulin cost-sharing will be capped at either $35 per month or 25% of the maximum fair price/negotiated price, whichever amount is lower. This expands on earlier insulin affordability initiatives and ensures predictable out-of-pocket costs for insulin-dependent beneficiaries.

Vaccine Coverage Enhancements

The elimination of cost-sharing for adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) will continue, removing financial barriers to preventive care and potentially improving vaccination rates among Medicare beneficiaries.

New Payment Programs

The introduction of both the Medicare Prescription Payment Plan and the selected drug subsidy program represents novel approaches to medication affordability and financing. These programs aim to improve access while controlling costs in the Medicare prescription drug benefit.

Part D Risk Adjustment Modernization

To accommodate the substantial structural changes brought by the IRA, CMS is implementing comprehensive updates to the Part D risk adjustment models:

• New models will accurately reflect the IRA's significant benefit changes for 2026

• Adjustments will account for the impacts of the Manufacturer Discount Program

• Models will incorporate the effects of negotiated prices under the Drug Price Negotiation Program

• More recent data will be utilized, specifically 2022 diagnoses paired with 2023 cost data

• Multiple linear regression methodology will be applied for normalization factors

These technical adjustments ensure that risk adjustment mechanisms remain aligned with the evolving structure of the Part D benefit and provide appropriate compensation for plans serving beneficiaries with varying health profiles.

Star Ratings Program Evolution

The Star Ratings system, which influences plan payments and serves as a quality indicator for consumers, continues to evolve with the 2026 announcement:

• CMS has finalized the list of eligible disasters that qualify for measurement adjustments

• Non-substantive specification updates have been incorporated for existing measures

• Revised methodologies will be applied for Part C and D Improvement measures

• The Categorical Adjustment Index has been updated to better account for socioeconomic factors

Looking ahead, CMS continues to seek stakeholder input on future measure concepts, with particular emphasis on clinical care quality, health outcomes, and patient experience metrics. The agency has indicated that any substantive changes will be addressed through future rulemaking processes.

Implications for Stakeholders

For Medicare Advantage Plans

The higher-than-anticipated payment increase provides financial breathing room for MA plans navigating an increasingly competitive marketplace. However, plans must carefully evaluate how the completed risk model transition will affect their specific populations and adjust bidding strategies accordingly.

For Part D Sponsors

The full implementation of IRA provisions presents both challenges and opportunities. Sponsors must rapidly adapt their benefit designs and financial projections to accommodate the new catastrophic coverage structure and manufacturer discount requirements while potentially leveraging the new drug negotiation program to manage costs.

For Healthcare Providers

The payment increases may translate to more favorable reimbursement rates from MA plans, though this will depend on individual contractual arrangements. Providers should also prepare for potential shifts in utilization patterns as beneficiaries respond to new Part D incentives.

For Beneficiaries

The changes promise enhanced financial protection, particularly for those with high medication expenses. The elimination of cost-sharing in the catastrophic phase and continued caps on insulin expenses represent tangible financial benefits for many Medicare enrollees.

Conclusion

The 2026 Medicare Advantage and Part D Rate Announcement represents one of the most consequential payment updates in recent years, combining substantial rate increases with transformative structural changes to the Part D program. The higher-than-projected growth rate offers financial stability for plans, while the completion of the risk model transition enhances payment accuracy.

Meanwhile, the implementation of key IRA provisions marks the beginning of a new era for Part D, with unprecedented beneficiary protections and novel approaches to drug pricing and affordability. As stakeholders digest these complex changes, they would be well-advised to thoroughly review the complete announcement and begin strategic planning for this new healthcare landscape.

CMS's willingness to adjust its initial proposals based on stakeholder feedback demonstrates the agency's commitment to collaborative policymaking, even as it pushes forward with ambitious reforms. The challenge now falls to industry participants to adapt to these changes while continuing to deliver high-quality care and coverage to Medicare beneficiaries.