Private Medicare plans get a break

After saying it wanted to keep federal payments to private Medicare plans roughly flat next year, the Trump administration reversed course on Monday and gave the insurers a $13 billion pay bump.

Why it matters: The average 2.48% pay increase for 2027 was on the high end of analysts' expectations and marked a win for UnitedHealthcare, Humana and other Medicare Advantage plans, whose stocks tumbled after the administration's initial proposal in January.

• The plans will instead see an average increase of nearly 5% when payments are adjusted to reflect how sick enrollees appear, Medicare officials said.
• The administration was swamped by tens of thousands of comments after the initial proposal of less than a 0.1% increase for 2027.

Driving the news: The pay increase reflects higher health cost growth in traditional Medicare that became apparent after additional data from the end of 2025 was crunched.

• The Centers for Medicare and Medicaid Services also dropped a proposal to update payments to plans based on the health status and demographics of enrollees, which insurers said would have disrupted their ability to care for seniors.
• Medicare officials said that it makes sense to give insurers more time to absorb prior "risk adjustment" updates.

The administration is moving forward with a plan to prevent insurers from adding diagnoses after reviewing patients' medical records — a move that addresses coding practices that have received scrutiny and is expected to save nearly $7 billion next year.

What they're saying: Some Medicare providers said the pay boost still doesn't reflect economic realities, at a time when the cost of drugs, supplies and more patient visits is stoking medical inflation.

• "When payments fail to keep pace with care delivery costs, the consequences are predictable," said Jerry Penso, president of medical group association AMGA, predicting possible cuts to supplemental benefits like vision and dental, higher costs to beneficiaries and, in some instances, plans exiting markets.
• Medicare Advantage enrollment declined in seven states this year as plans pulled out of some markets.

Between the lines: The administration's original flat-funding proposal reflected bipartisan concern over how much money Medicare Advantage costs the health care system.

• Policymakers' concerns that health plans aren't sufficiently lowering costs "will remain a headwind" for Medicare insurers, Duane Wright, senior health policy analyst at Bloomberg, said in an email.
• Director of Medicare Chris Klomp said the finalized update aims to strike a balance between protecting seniors and protecting taxpayers.
• "I'm sure that there will be folks on both sides of the equation who may have concerns about where we've landed," he said.
• "We're certainly not abdicating responsibility [to taxpayers], nor are we saying that we are done."

Zoom out: Medicare administrators late last week finalized a separate plan to overhaul Medicare Advantage's quality reporting and ratings system, which they expect will increase payments to plans by $18.6 billion over the next decade.

• "As health plans incorporate the policies released in recent days, they will continue to focus on keeping coverage and care as affordable as possible during this time of sharply rising medical costs," Chris Bond, spokesperson for insurance lobbying group AHIP, said in a statement.

What we're watching: Whether insurers run ads accusing the administration of cutting Medicare in the run-up to the midterm elections, as they did with the Biden administration in 2023.