The landscape for healthcare investment is shifting as new federal data provides a clearer picture of the financial trajectory for managed care. For those tracking the sector, a significant catalyst has emerged: the Centers for Medicare & Medicaid Services (CMS) has finalized payment rates for the upcoming cycle, providing a boost that may influence the valuation of healthcare stocks and the profit growth of insurance providers.
On April 6, 2026, CMS released the Medicare Advantage and Part D Rate Announcement for calendar year 2027, finalizing a net average year-over-year increase of 2.48% in Medicare Advantage (MA) plan payments. This represents an injection of over $13 billion more than in 2026, a figure that substantially exceeds the agency’s initial estimate of a 0.09% increase provided in the advance notice earlier this year via American Hospital Association.
This unexpected increase in payment rates serves as a critical data point for investors seeking value and rapid profit growth in the healthcare sector. When estimated risk score trends in Medicare Advantage are accounted for, the final rate actually amounts to a 4.98% payment increase via Becker’s Hospital Review. This development follows a 5.06% increase seen in 2026, suggesting a continuing trend of federal support for the MA program’s financial viability.
Breaking Down the 2027 Rate Announcement
The increase in net plan payments is largely attributed to CMS’s decision regarding the risk adjustment model. Originally, the agency proposed an updated model calibrated with Original Medicare 2023 diagnoses and 2024 expenditures data. However, CMS did not adopt these changes in full, choosing instead to continue using the 2024 MA risk adjustment model, which is calibrated with Original Medicare 2018 diagnoses and 2019 expenditures data for CY 2027 via American Hospital Association.
Beyond the baseline payment increase, several other technical adjustments impact the industry’s financial outlook:
- Effective Growth Rate: The effective growth rate rose from 4.97% in the advance notice to 5.33% in the final announcement, a change driven by the inclusion of original Medicare program experience data through the fourth quarter of 2025 via Becker’s Hospital Review.
- Coding Pattern Adjustments: CMS is maintaining a statutory minimum MA coding pattern difference adjustment of 5.9% via Becker’s Hospital Review.
- Chart Review Exclusions: The agency is finalizing the exclusion of diagnosis information from unlinked chart review records from risk scores, though an exception has been established for beneficiaries who switch MA plans via American Hospital Association.
Policy Shifts in Star Ratings and Part D
While payment rates provide a financial floor, the quality-based Star Ratings system continues to dictate the ceiling for potential bonuses and rebates. On April 2, 2026, CMS issued a final rule revising the Medicare Advantage Program, the Medicare Prescription Drug Benefit Program (Part D), and the Medicare Cost Plan Program via CMS.gov.
The Star Ratings system currently evaluates MA-PD contracts on up to 43 measures, MA-only contracts on up to 33 measures, and Part D plans on up to 12 measures. These are divided into five categories: outcomes, intermediate outcomes, process, patient experience, and access. For the 2027 ratings, CMS has decided not to implement the “Excellent Health Outcomes for All” reward (formerly the Health Equity Index reward). Instead, the agency will continue the historical reward factor that encourages consistently high performance for all enrollees across all quality measures via CMS.gov.
CMS is streamlining the measure set by removing 11 measures focused on administrative processes. These were removed because beneficiaries generally cannot distinguish performance between plans in these areas due to high performance and minimal variation via CMS.gov.
Impact on Prescription Drug Plans
The 2027 outlook also includes specific adjustments for Part D, influenced by the Inflation Reduction Act. CMS is finalizing changes to the Part D risk adjustment model to exclude audio-only and unlinked chart review record diagnoses. The agency will now use separate normalization factors to distinguish between MA prescription drug plan beneficiaries and standalone drug plan beneficiaries via Becker’s Hospital Review.
Beneficiaries will see direct cost changes in 2027. The standard Part D deductible is set to rise from $615 to $700, and the annual out-of-pocket threshold will increase from $2,100 to $2,400 via Becker’s Hospital Review.
Summary of Key Financial Changes for CY 2027
| Metric | Advance Notice Estimate | Final Rate Announcement |
|---|---|---|
| Net Average Payment Increase | 0.09% | 2.48% |
| Additional Funding (vs 2026) | $700 million | Over $13 billion |
| Effective Growth Rate | 4.97% | 5.33% |
| Risk Adjustment Model | Proposed 2023/2024 calibration | Retained 2018/2019 calibration |
For investors, these figures represent a pivot from the “nearly flat” projections seen in January. The decision by CMS to maintain the 2024 risk adjustment model rather than moving to the updated version explains a significant portion of the increase in net plan payments via American Hospital Association.
The combination of higher baseline payments, a refined Star Ratings measure set, and the retention of an older risk adjustment model creates a more predictable environment for MA plan operators. This stability is often a primary driver for those looking for value in healthcare stocks, as it reduces the volatility associated with regulatory shifts.
The next confirmed checkpoint for industry stakeholders is May 11, the deadline for submitting comments on data collection requirements for Medicare Advantage plans and Part D sponsors via American Hospital Association.
We invite our readers to share their perspectives on these regulatory changes in the comments section below.