Impact of CMS reforms on U.S. health insurers

Market sentiments have certainly changed in Individual health insurance following warnings from Centene Corporation and Molina Healthcare, but the extent of the challenges aren’t fully appreciated. Although I’ve been talking about 2024 being “peak Individual” with record profits, I thought 2026 would be really tough, without enhanced subsidies and CMS action on fraud. (And no, despite the claims of the ICHRA propagandists, ICHRA wasn’t going to save the market – more on that later this week as the ICHRA fantasy quickly fades.) But Individual insurers, especially in the non-Medicaid expansion states in the southeast, are being hit by two key headwinds - government policy actions to unwind “fake” member fraud and higher utilization for those that remain – having dire consequences. The most significant is the fake member fraud - brokers enrolling members who don’t even know they have coverage, which was especially pervasive in those southeast states. The government has started to crack down (more to come in 2026), which negatively impacts every plan, even those without any fake members. This is going to get very thrilling, so much so that I think I’m legally required to post an excitement warning…but basically Centene’s $1.8 billion hit is attributed to the market average risk score increasing. Why? Because a bunch of these fake members with 0 utilization were pulled out of pool. And this is bad for everyone in those states – plans that had no fake members will get paid less in relative risk adjustment, while those that had a lot of fake members will pay less in risk adjustment (since it sums to zero) but lose the profitability of the members with no claims. I’m guessing Centene is somewhere in the middle. Put another way, let’s say 1 million members in 2024 were fake (not unreasonable – CMS says 4-5 million from program integrity changes). That means Individual plans got paid around $8 billion, with probably $5 billion flowing through to margin to every plan through relative risk adjustment transfer. That’s now being unexpectedly pulled, meaning in aggregate Individual plans will take a $5 billion profit hit this year (which makes sense given Centene’s ~$2B warning). Add to it elevated utilization amongst the members that are remaining and we likely are going from record profits to large losses in just a few months. And 2026 looks even more brutal with massive rate increases and a fast-shrinking market…some are already wondering if we’re going to see a repeat of the Bright Health (not-so) slow mo failure. So, if (hypothetically) you’re an Individual-only plan almost entirely exposed to the southeast, now seems like a great time to raise an additional billion in capital, as market forces are about to overwhelm even well-run businesses

Medicare Part D’s new out-of-pocket cap is changing patient behavior. Plans may not be ready for the consequences--a 27% spike in drug spending. --- A new Milliman analysis shows that through the first half of 2025, gross drug costs per member per month (PMPM) in the non-low income (NLI) Medicare #PartD population rose 27% year-over-year. If current trends hold, 2025 may end with a 36% annual increase over 2024's second half. --- The Inflation Reduction Act’s $2,000 out-of-pocket cap is likely a major driver. Removing cost barriers predictably improves access, but it's also reshaping utilization patterns. NLI members, now shielded from catastrophic costs, are using more specialty therapies. That’s especially clear in classes like antineoplastics and biologics for atopic dermatitis, where gross costs and utilization both soared over 50%. In contrast, low-income (LI) members (whose benefit structure changed less) show far more stable trends. Group retiree (EGWPs) NLI specialty trends are far more muted, reinforcing the IRA’s outsized influence in the individual PDP and MAPD markets. --- The upcoming challenge is for plan pricing and risk adjustment. The 2025 RxHCC model is based on 2022 data, assuming historical cost relationships between LI and NLI enrollees that are no longer accurate. If CMS doesn’t adjust, plans could face serious misalignments between actual costs and revenue, and premiums could increase in 2027 when this year's claims impact bids. --- The IRA OOP max improved access and reduced OOP spending for high-spend members, but it also exposed major weaknesses in how the market adjusts for risk in Medicare Part D. How should CMS and plans respond for 2027?

🔔 Major CMS Update: PPO D-SNP Out-of-Network Cost-Sharing Limits (Effective Jan 1, 2026) CMS is reshaping the Medicare Advantage Special Needs Plan (SNP) landscape. The latest change? A new Out-of-Network (OON) cost-sharing cap for Dual Special Needs Plans (D-SNPs) with PPO designs. This is a major shift for payers, Medicaid, and members. 🛑 The Problem (Today, Before 2026) Dual-eligible members (Medicare + Medicaid) in PPO D-SNPs can see OON providers but at much higher costs. ➡ In-network PCP = $20 copay vs. OON PCP = $60 copay ➡ Medicaid often covers the higher OON costs → straining state budgets ➡ Members face financial barriers, confusion, and inequities CMS views this as a loophole harming vulnerable populations and state Medicaid programs. ✅ The New Rule (CY 2026 Onwards, 42 CFR 422.100(o)) PPO D-SNPs must cap OON cost-sharing for key Medicare Part A & B services OON costs cannot exceed in-network rates or CMS-set maximums (based on MOOP tier) Applies to: inpatient hospital/psych stays, SNF, rehab therapies, home health, PCP/specialist visits, outpatient & mental health, DME MOOP Tiers matter: Lower MOOP → more OON flexibility Intermediate MOOP → moderate caps Mandatory MOOP → strictest limits, strongest protections 🎯 CMS’s Intent ✔ Protect dual-eligibles from high OON costs ✔ Prevent hidden cost-shifting to Medicaid ✔ Standardize PPO D-SNP rules ✔ Ensure equitable provider access This is a member protection & equity initiative, not just a technical adjustment. 📊 Impact on Payers & Systems 1️⃣ Benefit Configuration → Redesign OON cost-sharing rules 2️⃣ Claims Adjudication → Systems must cap OON charges and track MOOP 3️⃣ Provider Contracting → Expect higher OON use; need steerage strategies 4️⃣ Member Communication → Update ANOC, EOC, directories, portals, marketing 5️⃣ Compliance & Reporting → 2025 bids and audits must reflect new standards 👩💻 What BA, PO, PM Should Focus On 🔹 Business Analyst (BA): Translate CMS rules into system requirements, define INN vs. OON logic, create acceptance criteria. 🔹 Product Owner (PO): Prioritize compliance changes, update member-facing materials, balance mandatory vs. strategic backlog. 🔹 Product Manager (PM): Lead strategy & financial modeling, coordinate actuarial/IT/ops/legal, position PPO D-SNP competitively. 📅 Timeline Apr 2024 → Final rule published 2025 → Payers update bids & systems Jan 1, 2026 → Rule goes live 🔑 Takeaway: Starting 2026, PPO D-SNPs cannot burden members with excessive OON costs for core Medicare services. This levels the field, protects Medicaid, and reshapes payer operations. For healthcare BAs, POs, and PMs, this is a policy-to-operations transformation project with tight deadlines, cross-functional dependencies, and zero margin for error. #HealthcareIT #CMS #DSNP #MedicareAdvantage #Medicaid #HealthcarePolicy #BusinessAnalyst #ProductOwner #ProductManager #Payers #Facets #HealthEdge #HRP

For every 10,000 patients in a MA risk plan the 2027 proposed rule will cut about $1.2M in risk score care funding. However, most of that comes from coefficient shifts to many high prevalence, chronic conditions. Let's dig in! Wow, what a week, make that year, of news. This seems to be the latest in a series of population health and Medicare Advantage risk adjustment releases. Today we will focus on the conditions with a huge negative impact to the risk score. If you want to be alerted to my next post where I share the impact in scores that positively impact finances, smash that follow button or add me to your network. On Monday CMS released the payment year 2027 proposed rule. As a reminder, in Medicare Advantage the payments for 2027 are based on 2026 visits. That means when the rule is finalized it becomes retrospectively applied to encounters as of January 1st. Overall MA payments are expected to go up only 0.09%, exclusively driven by the effective growth rate. There are several key components of the proposed rule and one that jumped out to me was that CMS didn't change the model but did use newer data to update the coefficient weights. This impact will lead to a significant shift in where risk scores are derived from. My math shows that the top 10 conditions (I counted diabetes with and without complications as one) by prevalence account for 41% of the total risk score value. Those 10 conditions cumulatively see a huge impact. When a lot of people have a condition then a small shift means big impacts. In fact, the shift in weights for these conditions account for a $2.3M decrease in care funding. Of the top 10 conditions the chart shows that 8 of them went down in the aged, non-dual risk score. I focus on the aged, non-dual score given the majority of patients fall into that bucket. These are all common conditions often seen and addressed by primary care annually. The basis for the shift is that CMS updated the timing of the data set used for the model. The original data used 2018 dates of service and the new model uses 2023. A lot has changed in the capture of conditions during that period. We have seen a surge in AI focused technology looking for risk conditions. We have also seen organizations focus on risk adjustment more via shared savings contracts and the use of outpatient CDI. Personally I would love to see the data. Shifting the weights means that either we have gotten much better at controlling cost for conditions or organizations may have started to capture conditions but not see a corresponding claims expense for those patients. I would love to see the details. What does this mean for you? In my mind it heightens ensuring you capture every condition (you should anyway) but it means more to capture every one. If you capture 85% of conditions you know about then you should aim higher for a goal like 95%. It also sends a signal that quality is only becoming more paramount and HEDIS/STARS performance is a must.

The Centers for Medicare & Medicaid Services has proposed that Medicare Advantage plan revenues will remain flat going into 2027 at a moment when underlying medical costs, labor expenses, and pharmaceuticals continue to rise materially. What does this mean in practice? For beneficiaries: Over time, beneficiaries should expect less generous benefits, tighter utilization management, and narrower provider networks. Access may become more constrained—not necessarily through explicit benefit cuts, but through fewer participating provider groups and more selective contracting. The tradeoff between affordability and choice will become more acute. For brokers and distribution partners: Distribution costs in Medicare Advantage are largely fixed, particularly commissions and marketing infrastructure. As margins compress, plans will continue to reassess how (and how much) they pay for growth. This may include lower upfront commissions, greater reliance on retention-based compensation, or shifts toward more direct-to-consumer enrollment strategies. For provider groups: Provider organizations seeking rate increases will face a much tougher negotiating environment. With plan revenues constrained, upward pressure on provider rates becomes difficult to absorb. As a result, some provider groups may choose to exit Medicare Advantage entirely, while others will narrow participation to fewer plans. The result may be increased network fragmentation and heightened tension between plans and providers over risk, quality expectations, and total cost of care. For managed care company employees: Cost discipline will extend inward. Plans will be slower to hire, more selective about new investments, and may pursue workforce reductions. Expectations will shift toward higher productivity, flatter organizational structures, and doing more with fewer resources. For Investor-backed Medicare Advantage plans: The economics of growth will change. Longer payback periods, lower internal rates of return, and greater regulatory uncertainty will make Medicare Advantage investments less immediately attractive. Capital will still flow to the sector, but it will be more discriminating, favoring scale, operational excellence, and differentiated capabilities rather than growth at any cost. For small and regional health plans: Scale matters more than ever. Smaller plans will struggle to compete. Many may exit the market or seek partnerships, mergers, or acquisitions. Consolidation pressures are likely to intensify as fixed administrative and compliance costs consume a greater share of revenue. Time will tell whether the rate decisions outlined in the Advance Notice hold through the Final Rule. Regardless of the ultimate number, one thing is clear: Medicare Advantage is entering a period of transition. The era of easy growth is ending, and the next phase will be defined by tradeoffs—between generosity and sustainability, growth and discipline, innovation and affordability.

#INDUSTRYALERT: Yesterday #CMS unveiled another wave of major #Medicare changes in the 2025 PFS #ProposedRule. Proposed changes build on the significant 2024 updates and add to 2025 #PartD Redesign and #IRA impact. Why should #MedicareAdvantage plans care? 🔥 OVERPAYMENTS: Buried in the 2,284 pages are revised overpayment rules for #MA plans (and #VBC/risk-based providers) which apply to #RiskAdjustment upcoding and coding errors 🔥 PROFITS: Since MA plans must cover all FFS services, some proposals increase expense and require operational adjustments. Some proposals with greatest impact in MA include: 1️⃣ OVERPAYMENTS: Revised proposals for reporting and returning Overpayments to CMS. 2️⃣ #QUALITY MEASURES: Accelerated FFS alignment with #UniversalFoundation. 3️⃣ #CAREGIVERS: New payments for #caregiver training. 4️⃣ HEART DISEASE: New payment for cardiovascular risk assessment and CM. 5️⃣ #TELEHEALTH: Adjusted eligibility for various services. 6️⃣ #MENTALHEALTH: New payments for those at high risk of suicide/OD and adjustments to OUD services 7️⃣ #DIGITALHEALTH: New payment for FDA-approved BH/MH devices/apps/platforms. 8️⃣ #DENTAL: Expanded Part A/B dental coverage for dialysis patients w/ESRD. 9️⃣ HEP B: Expanded vaccine coverage with $0 MOOP in retail pharmacies. 🔟 COLORECTAL CANCER SCREENING: Removal of non-#HEDIS compliant test and new coverage for CTC procedure. What should MA plans do right now? ✅ ASSESS IMPACT: Examine impact of these proposals on your contracts and organization. Comment to CMS – your feedback matters!   ✅ BRIEF LEADERSHIP: Ensure leaders know about the proposals to begin planning for those which are finalized.   ✅ PREPARE FOR FINAL RULE: Equip impacted departments to activate against finalized changes; leverage early adoption for a strong #AEP and #StarRatings impact. ✅ REVIEW TH STRATEGY: Determine if your strategy will require adjustment if proposals are finalized. Assess #Stars or RiskAdjustment impact if proposals are finalized and design alternate workflows if needed. ✅ VENDOR OVERSIGHT: Confirm vendor status on 2024 changes and examine readiness for potential 2025 changes. Include review of #V28, #SupplementalBenefit reporting, MY2025 MA Final Rule, #HealthEquity Index, #OCR Nondiscrimination Final Rule, and the looming #Medicaid Final Rule.   For Our Vendor Partners: Many of you provide services impacted by some of these proposals. Please examine the impact of these proposals and submit comments. We’re proud to support health plans, providers and vendors during this seismic period in Medicare. Many of you have expressed challenges keeping up with regulatory updates. We're exploring new services to bridge this gap and would love your feedback. Let's chat! #ChangeIsOpportunity. Through our collective efforts, we're advocating for our communities and working towards a more effective, sustainable Medicare system. Please reach out if you need further insights or support. Comments are due by September 9.