How Medicare Advantage Plans Can Thrive Despite CMS’s Proposed Minimal Rate Increase
This is an AArete Healthcare Payer insight
CMS recently released its Calendar Year 2027 Advance Notice and it’s changing how Medicare Advantage plans think about growth as a long-term strategy. The proposed increase to plan payments is only 0.09%, a stark contrast to last year’s 5.1%. For plans already facing cost constraints, this negligible increase means that enrollment growth alone won’t deliver profitability and sustainability gains. Plans need to reduce administrative expenses, strategically design benefits to attract balanced member mixes, and address high-cost areas of business operations.
The New Reality: Strategic Growth Over Volume
Achieving scale remains a central strategic priority for Medicare Advantage plans. Although growth historically correlated with improved financial position, now how much growth and what kind of growth are more pressing considerations. Some plans are pulling out of markets, while others are poised to move in. Regardless of market positioning, all plans need to gain efficiencies and reduce administrative costs.
Organizations focused on strategic growth typically have the following characteristics:
- Focus solely on serving the Medicare Advantage population in a limited number of markets
- Have 200,000 or more covered lives
- Maximize their quality-linked topline boost with Star ratings of 4.5 or 5
- Maintain robust operations and IT infrastructure
- Have a strong leadership team in place
The plans poised for growth are eyeing payers exiting the market as an opportunity to provide their high-quality plans and benefits, more cost-efficiently, to a much larger pool of members. They’re also doing the internal work to design and price products that attract their desired members. These organizations are laser-focused on maintaining quality while driving efficiency through increased automation and AI. By lowering costs through automation, they’re able to offer competitive, high-quality products.
Larger national plans with multiple lines of business are also pursuing growth with a different strategy, with an eye toward dual eligibility offerings. These plans typically have an established Medicaid footprint and a core base of Medicare Advantage (MA) members, or vice-versa. Like their MA-focused counterparts, they’re implementing smart automation and AI to reduce administrative costs and create capacity for expansion.
Managing Costs in Challenging Markets
In certain counties, particularly smaller or higher-cost markets, MA benchmarks combined with utilization trends, risk model changes, and Star rating volatility can materially compress margins. Although risk adjustment compensates for acuity, plans must rigorously analyze internal medical and administrative cost drivers to sustain profitability.
Organizations often have untapped opportunities to improve operational efficiency. By conducting granular trend analytics that link operating expense, medical cost, and contribution margin at the county and product level, plans can make informed decisions about where to focus. With this visibility, targeted initiatives including workflow automation, coding optimization, and predictive cost management can address specific margin pressure points rather than applying broad brush cost-cutting initiatives.
Taking Action Now
As history has shown, the advance notice is rarely the final decision. But it’s clear that plans need to be intentional about introducing efficiencies, maintaining or improving Star ratings, and designing benefit plans to attract a balanced mix of members.
AArete helps plans navigate these challenges through:
- Refining vendor ecosystems to maximize the value of those relationships
- Bridging gaps in data and processes
- Performing trend analytics to identify and correct costly problem areas, leveraging proprietary market intelligence
- Honing cost-of-care levers, including network design, utilization management, payment accuracy, and analytics
- Strengthening baseline data to enable deployment of AI capability and applications and drive tangible ROI
Throughout the year, AArete will be offering helpful playbooks and advice related to these levers. Follow us on LinkedIn and subscribe to the Payer Pulse newsletter to get access to the latest publications as they’re released.
