The U.S. government has proposed a modest average rate increase of 0.09% in payments to private insurers managing Medicare Advantage plans for 2027. The announcement came Monday from the Centers for Medicare & Medicaid Services (CMS), sparking a sharp drop in the stock prices of major insurers, with some falling by more than 10%.

What the Proposal Means

According to CMS Administrator Mehmet Oz, the proposed changes aim to reflect underlying cost trends while modernizing risk adjustment and protecting taxpayers from unnecessary spending. "These proposed payment policies are about making sure Medicare Advantage works better for the folks it serves," Oz said in a statement.

The government estimates that the proposed 0.09% increase would result in more than $700 million in additional payments to insurers in 2027. However, some industry experts had expected a much higher rate increase, closer to 4% or 5%, citing rising costs and utilization in senior care insurance.

Industry Reaction

Kevin Gade, Chief Operating Officer at Bahl and Gaynor, said, "Folks were ballparking this flat rate to be closer to 4 to 5% given the rising costs and utilization in senior care insurance." Gade's firm holds shares in UnitedHealth, one of the largest Medicare Advantage providers.

Gade added that more details about the potential impact of the proposed rates could emerge during UnitedHealth CEO Stephen Hemsley's conference call with investors and analysts on Tuesday. The call is expected to follow the company’s announcement of its fourth-quarter results.

Impact on Seniors

Critics of the proposed rate increase warn that it could lead to significant changes for the 35 million seniors and people with disabilities enrolled in Medicare Advantage plans. If finalized, the proposal might result in benefit cuts or higher out-of-pocket costs when beneficiaries renew their coverage in October 2026, according to industry analysts.

Currently, more than half of those enrolled in Medicare—primarily folks aged 65 and older or those with disabilities—receive their coverage through Medicare Advantage plans. These plans are managed by private insurers who contract with the government to provide benefits.

What's Next

The proposed rate adjustments are still subject to a public comment period and further review before being finalized. Industry stakeholders, including insurers and advocacy groups, are expected to weigh in heavily on the potential implications for both beneficiaries and the healthcare market.

For now, seniors and their families may want to keep an eye on updates to see how these changes could affect their coverage and costs in the coming years.