The 0.09% Shock

On January 26, 2026, CMS released the Calendar Year 2027 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies. The headline number was 0.09%. That figure, representing the proposed net average year-over-year payment increase for MA plans, translates to roughly $700 million in additional aggregate payments across the entire MA program. Wall Street had been modeling a 4% to 6% increase. The prior year’s finalized rate had come in at 5.06%, itself a generous bump that sent insurer stocks soaring in April 2025. A 0.09% advance notice was not a rate cut in the technical sense, but it functioned as one against every plan’s cost and enrollment projections for the coming year.

The market response was immediate. On January 27, UnitedHealth Group shares fell approximately 20%, compounded by the company’s own same-morning earnings report projecting its first revenue decline since 1989. Humana dropped 22%. CVS Health fell 13%. Elevance lost roughly 13%, and Centene declined more than 10%. UnitedHealth’s single-day loss erased over $60 billion in market capitalization. The Dow Jones Industrial Average dropped more than 330 points on the insurer selloff alone while the S&P 500 hit a new intraday high, an unusual divergence that underscored how concentrated the damage was in managed care.

This was not a routine advance notice generating routine comment-period adjustments. The 0.09% contains within it a structural payment policy change, the exclusion of diagnoses from unlinked chart reviews, that represents the largest single-mechanism payment reduction CMS has ever proposed in an MA rate cycle. The question this article answers is not whether the number is surprising. It is what the number actually contains, why it diverges so sharply from prior years, and what the response window looks like between now and the April 6 Final Rate Announcement.

What the 0.09% Actually Contains

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The 0.09% is a composite figure. It reflects the net impact of several payment components moving in different directions, and its construction explains why the headline number diverges so dramatically from recent experience.

The effective growth rate, which measures the projected increase in county-level MA benchmarks driven primarily by growth in Original Medicare per-capita fee-for-service costs, came in at 5.10%. That figure is broadly consistent with prior years. FFS spending continues to grow, and benchmarks follow. In isolation, the growth rate would have produced a mid-single-digit update not far from what plans and analysts expected. The growth rate does reflect a technical adjustment related to how CMS pays for skin substitutes under the 2026 Medicare Physician Fee Schedule, which materially reduced the projected cost base. But the underlying FFS spending trend remains intact.

The risk score trend factor adds an estimated 2.45% to expected plan payments, reflecting the average annual change in MA risk scores driven by coding practices and population changes. CMS calculates this figure using the three most recent years of MA risk score data, returning to the standard methodology after using a compressed two-year window for CY 2026 due to model transition data limitations. When added to the 0.09% base, the expected average change in effective payments rises to 2.54%. Plans will point to this number as the more meaningful measure of actual revenue trajectory. CMS will point to the 0.09% as the measure of payment policy changes it controls directly.

The Quality Bonus Payment structure remains unchanged in design. Contracts rated 4 stars or above receive a 5 percentage-point benchmark bonus. New and low-enrollment contracts receive a 3.5-point bonus. The 2026 Star Ratings, finalized in October 2025, determine 2027 QBP eligibility. The Star Ratings impact in the advance notice reflects the distribution of those finalized ratings across the MA contract population.

What the 0.09% headline does not include, and what explains the gap between the growth rate and the net figure, are two dominant mechanisms operating on the reduction side. The first is the proposed exclusion of diagnoses from unlinked chart review records, which CMS estimates would reduce MA payments by $7.2 billion in CY 2027. This single policy change accounts for nearly all of the distance between the growth rate and the headline. The chart review exclusion is covered in depth in MCR-02.02, but its financial magnitude must be understood here: the $7.2 billion reduction dwarfs the $700 million net increase. CMS is effectively proposing to grow benchmarks by more than 5% and then offset most of that growth through a risk adjustment methodology change.

The second continuing reduction mechanism is the coding pattern adjustment, maintained at 5.9% for CY 2027, consistent with the statutory requirement to account for systematic differences in diagnosis coding between MA and Original Medicare. The CPA is not new, but its interaction with the chart review exclusion is significant. Plans face both adjustments simultaneously. The CPA reduces payments across the board for coding intensity differential. The chart review exclusion targets a specific mechanism, unlinked retrospective reviews, that the CPA was not designed to fully capture. The combined effect is cumulative, not duplicative.

The risk adjustment model itself is being updated but not structurally overhauled. CMS proposes to continue using the V28 clinical classification system implemented with the 2024 CMS-HCC model, now fully phased in after the three-year transition that concluded in CY 2026. The proposed 2027 model recalibrates V28 using more recent underlying Original Medicare data, shifting from 2018 diagnoses and 2019 expenditures to 2023 diagnoses and 2024 expenditures. It also includes refinements to exclude diagnoses from audio-only encounters. The normalization factor methodology continues to apply separate factors for MA-PD and standalone PDP plans, a change CMS introduced for CY 2025 that reduced Part D revenue for MAPD plans and prompted some carriers to offer unbundled MA and PDP products for large employer groups.

Why This Cycle Is Different

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Four years of rate history frame the shock.

CY 2024 delivered a 3.32% effective growth rate, the first year of the V28 HCC model phase-in. CY 2025 came in at 3.70%, with $16 billion in additional payments, as the second year of the three-year transition continued. CY 2026 produced the most generous rate in recent memory: 5.06%, generating over $25 billion in additional revenue, partly reflecting the completion of the HCC model phase-in and an effective growth rate that jumped from the advance notice estimate of 5.93% to 9.04% in the final announcement as additional FFS expenditure data became available. CY 2027 proposes 0.09%.

The sequence matters. The 5.06% for CY 2026 was itself a departure from the multi-year trend of 3% to 4% increases, and it set market expectations for CY 2027 well above where CMS landed. Analysts had modeled 2027 as a rebound year. UnitedHealth had projected membership contraction of 1.3 to 1.4 million MA members in 2026 as it exited unprofitable counties and restructured benefits, expecting 2027 rates to provide a floor for stabilization. The 0.09% eliminated that floor.

What changed between 2026 and 2027 is not the growth rate. It is the chart review exclusion. No prior advance notice has included a single payment methodology change of comparable magnitude. The ACA-era benchmark reductions that restructured MA payments between 2012 and 2017 operated on benchmarks over multiple years. The chart review exclusion proposes to remove $7.2 billion in a single payment year. It is, in dollar terms, the most aggressive administrative payment action CMS has taken against MA plan revenue since the program’s current payment architecture was established.

The V28 model phase-in also contributes to the discontinuity. During the three-year transition from CY 2024 through CY 2026, normalization factor adjustments provided a partial cushion against the model’s reclassification of HCC codes. That transition is now complete. The one-time buffer that blending old and new model coefficients provided is gone, and the proposed 2027 model recalibrates on more recent data without a transition blend. Plans that experienced favorable normalization during the phase-in period will find that cushion absent.

The fiscal and political context is also different. The HI Trust Fund faces a projected depletion date of 2033, and the administration has made program sustainability a stated priority. CMS framed the 0.09% advance notice in sustainability language, emphasizing payment accuracy and long-term program stability. The agency’s position is that MA overpayment, particularly through coding practices that generate risk scores above what the same beneficiaries would cost in Traditional Medicare, draws down the trust fund faster than the beneficiary’s actual care pattern warrants. The chart review exclusion is the operational expression of that position. This is not an agency trying to shrink MA. It is an agency that has concluded that the current payment methodology overpays for a specific category of coded diagnoses and has chosen to stop paying for them (see MCR-02.07 for the trust fund arithmetic).

Market Reaction and Industry Response

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The stock market response repriced the entire managed care sector in a single session. Beyond the headline drops for UnitedHealth, Humana, CVS, and Elevance, the selloff cascaded through smaller MA-exposed companies. Alignment Healthcare and Molina Healthcare both declined sharply. Molina subsequently announced a complete exit from the traditional Medicare Advantage market by 2027. Raymond James analyst Chris Meekins characterized the political dynamics directly, noting that giving MA plans a bad rate update in a midterm election year, with benefit changes visible to seniors weeks before November, would carry significant political risk for the administration.

Morningstar analyst Julie Utterback noted that the firm had incorporated lower MA margins into its models in May 2025 following CMS signals about chart review restrictions and coding intensity reform, but had not anticipated a functionally flat rate environment. Morningstar maintained its fair value estimates pending the April final announcement, reflecting the historical pattern of significant upward revision between advance notice and final rate.

That historical pattern is the central variable in the industry’s near-term calculus. The CY 2026 cycle saw a 2.83 percentage-point increase between advance notice and final announcement, driven primarily by updated FFS expenditure data becoming available between January and April. CMS acknowledged in the 2026 rate announcement that the growth rate increase from 5.93% to 9.04% reflected the inclusion of Q4 2024 payment data that had not been available for the advance notice. A similar dynamic could operate for CY 2027 if additional expenditure data changes the growth rate estimate. But the chart review exclusion is a policy choice, not a data update, and it is unlikely to be reversed between advance notice and final announcement.

AHIP’s response acknowledged support for reforms that strengthen MA while warning that flat funding amid rising medical costs and utilization would affect seniors’ coverage directly. The organization projected that finalization could produce benefit cuts and higher costs for 35 million beneficiaries when they renew coverage in October 2026. AHIP retained Wakely Consulting Group to produce a financial impact analysis, which estimated that roughly 70% of MA enrollees live in areas that would see payment cuts to plans. The most negatively affected states included Oklahoma, Kansas, West Virginia, Alabama, and North Dakota. Rural counties would see lower growth on average than urban ones, a geographic distribution that cuts against the administration’s electoral base in ways the comment period will make explicit (see MCR-02.06 for state-level analysis).

ACHP’s initial January statement called the rate “disappointing and wholly unrealistic,” noting that nonprofit community health plan members spend 96 cents of every premium dollar on care delivery. ACHP’s February follow-up struck a more calibrated tone, acknowledging the administration’s stated commitment to a strong MA program while emphasizing that regional nonprofits in rural and underserved areas face acute exposure. ACHP’s structural argument, that its members are less dependent on chart review revenue and more reliant on encounter-based documentation and high Star Ratings, positions regional nonprofits differently from national carriers. The February comment letter pressed CMS to differentiate the final rate’s impact by plan type.

Better Medicare Alliance framed the advance notice as falling short of stability requirements, emphasizing that beneficiaries were already experiencing the effects of prior-year policy changes. BMA cited research showing 2.9 million enrollees experienced forced disenrollments in CY 2026 due to plan terminations in their service areas, with average premiums rising 24% and supplemental benefits declining.

CMS Director of Medicare Chris Klomp, speaking at a Paragon Health Institute event after the advance notice release, articulated the agency’s position with unusual directness: CMS does not want risk adjustment to function as a source of competitive advantage. Risk adjustment’s purpose is preventing adverse selection, not maximizing revenue. That framing positions the chart review exclusion not as a rate reduction but as a correction to a payment mechanism that had been repurposed beyond its original design.

What This Means for Plans by Type

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The 0.09% affects different plan categories differently, and the variation is driven almost entirely by chart review exposure.

National carriers with large MA footprints and aggressive chart review operations face the steepest revenue compression. UnitedHealth, with roughly 30% of national MA enrollment, has the largest absolute exposure. The company’s January 27 earnings call disclosed a projected 2% revenue decline for 2026, the first contraction in over three decades, and characterized the 2027 rate proposal in stark terms. Tim Noel, CEO of UnitedHealthcare, called the proposal something that does not reflect the reality of medical utilization and cost trends. Humana, with approximately 17% of national enrollment and the highest concentration of revenue in government-sponsored programs, faces proportionally intense margin pressure. CVS Health, operating its MA business through Aetna, faces what analysts have described as disproportionate chart review exposure, with Mizuho estimating that unlinked chart reviews touch a high share of Aetna’s MA enrollee population.

For these carriers, the bid calculus for June 2026 submission looks materially different than it did twelve months ago. At 0.09%, county-level withdrawal becomes rational in more geographies. UnitedHealth has already signaled further market exits beyond its 2026 contraction. The question for national plans is not whether benefits will be cut but how many counties remain viable at effective rates that may land between 0.09% and whatever upward revision the April announcement delivers.

Regional nonprofits and community health plans occupy a structurally different position. ACHP members generally operate with lower chart review intensity, meaning less of their risk-adjusted revenue derives from unlinked retrospective reviews. They tend to concentrate in Star Ratings tiers that generate quality bonus payments, which are unaffected by the chart review exclusion. Their cost structures reflect the 96-cents-on-the-dollar care delivery ratio ACHP cites, which leaves less margin but also less dependence on coding-driven revenue optimization. The chart review exclusion removes revenue that regional nonprofits were less dependent on in the first place, but the 0.09% base rate still compresses their operating margin for medical cost growth that all plans face equally.

Provider-sponsored plans and payviders are the least exposed category. Organizations like Kaiser Permanente, UPMC, Geisinger, and CareOregon capture risk scores through encounter-based documentation at the point of care because their clinicians and their plan operate within the same organizational structure. No arm’s-length chart review process is necessary when the plan and the provider share a balance sheet. The chart review exclusion removes a payment stream payviders were not reliant on, and the integrated delivery model provides a cost absorption buffer through delivery system volume capture that standalone insurers lack (see MCR-05.02).

PACE organizations receive a partial reprieve. CMS proposes a 50/50 blend between the legacy 2017 CMS-HCC model and the proposed 2027 model for PACE risk score calculation, continuing the phased transition toward full encounter data submission. The chart review exclusion will not apply to PACE organizations for CY 2027. PACE economics differ fundamentally from standard MA because the program serves a frail, nursing-home-eligible population under a comprehensive capitated model that bundles acute, post-acute, and long-term care. The payment mechanics and the population acuity profile operate on a different analytical plane than the standard MA rate discussion.

What Happens Next

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The comment period closed on February 25, 2026. CMS will publish the Final Rate Announcement no later than April 6, 2026. The window between now and that date is the most consequential 40 days in the MA payment cycle.

What to watch in the final announcement: changes to the effective growth rate driven by updated FFS expenditure data, any modifications to the chart review exclusion methodology (a phase-in, a partial exclusion, or a different dollar estimate), normalization factor adjustments, and risk score trend revisions. The growth rate is the component most likely to move upward, following the CY 2026 precedent. The chart review exclusion is the component most likely to remain structurally intact, because it reflects a deliberate policy position rather than a data update.

The historical concession range between advance notice and final announcement has averaged 1 to 3 percentage points upward in years where FFS data revision was the primary driver. In CY 2026, the 2.83-point increase was unusually large and reflected an unusually late inclusion of payment data. Whether a similar data revision occurs for CY 2027 depends on the trajectory of FFS spending in Q4 2025 and Q1 2026, which CMS will have access to before the April announcement.

The political calendar exerts its own pressure. CY 2027 benefit changes will be communicated to beneficiaries in the Annual Notice of Change mailed in September 2026, approximately six weeks before the November midterm elections. If the 0.09% is finalized without significant upward revision, the benefit reductions, premium increases, and service area withdrawals that plans implement in their June bids will become visible to 35 million MA enrollees at the worst possible moment for the administration’s congressional allies. Raymond James and multiple other analyst firms have flagged this dynamic. The political risk of finalizing a flat rate that produces visible benefit cuts in an election year is not lost on CMS or the White House, and it creates an asymmetric incentive: the April announcement is more likely to move up than to hold steady.

After the final rate, plans submit CY 2027 bids by June 1, 2026. Those bids translate the final rate into benefit design, premium, and service area decisions. CMS reviews and approves bids over the summer. Benefits and premiums are announced publicly in October 2026 and take effect January 1, 2027. The lag between the rate announcement and consumer-visible impact spans nine months, but the analytical and strategic decisions that determine that impact compress into the 60 days between April 6 and June 1.

The 0.09% is not an anomaly. It is the rate expression of a structural policy shift that has been building through three years of HCC model reform, coding pattern adjustment recalibration, and encounter data quality investment. CMS is moving MA payments toward a system where risk scores reflect conditions providers are actively managing during documented encounters, not conditions that exist in historical chart documentation. Whether that recalibration produces a sustainable MA market or accelerates plan exits and benefit erosion depends on what CMS decides in April and on how plans respond in June.

Related Reading

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MCR-00_01 The Trust Fund Clock MCR-04_01 Is MA Still Worth It? The Strategic Recalculation for Insurers MCR-12_01 The MA Plan Landscape Under Pressure: UnitedHealth, Humana, CVS/Aetna, Elevance, and the Regional Plans MCR-05_02 Becoming a Payvider: The Strategic Case for Provider Plan Ownership