Nothing like boldly defining your priorities! CMS announced on April 7, 2025 that Medicare Advantage payers would receive a 5.06% increase for 2026 – about $25 billion more than in 2025. Stock prices jumped.
It was a Medicare Advantage payday larger than what the insurance companies expected. In the last days of 2024, CMS’s proposal for 2026 was only a $21B increase.
Hmm…Cutting the federal deficit?
Provider reimbursement rates for 2026 won’t be announced until November or December of 2025 – but I took a historical look at Medicare rate changes for healthcare professionals vs. Advantage plans.
Medicare Advantage payday, indeed!
Mental health professionals often say to me: “it’s almost as if they really don’t want us to take Medicare.” Looking at these numbers, it’s hard to disagree with this conclusion. I don’t believe it’s intentional, but Medicare is a government program, heavily influenced by politics. And in DC there are highly-paid lobbyists – who don’t work for mental health or even medical professionals. So I suppose the end result is the same.
The great Medicare Advantage payday of 2026 proves that (mis)managing American healthcare is a far more lucrative gig than providing that care.
Meanwhile, there’s no evidence that the sequester will be revoked.
Sequester?
If you’re participating in Original Medicare, take a look at one of your remittance notices. Look for the adjustment code CO-253. It stands for Sequestration-Reduction in federal payment. The group code “CO” means contractual obligations – the client isn’t responsible for this amount, which is 2% of the Medicare payment amount owed you, after the coinsurance has been calculated.
Sequestration took effect in April 2013, and has been in effect continually ever since, except for a break between May 1, 2020 and March 31, 2022 due to the COVID pandemic.
So does the Medicare Advantage payday get cut by 2% too?
Indirectly. Medicare Advantage payers receive their money from the federal government on a capitated basis. Meaning that for every person who signs up for a Medicare Part C (Advantage) plan, the government pays a flat fee “per head.” Out of that, the insurance company must cover all of their enrollees’ covered medical expenses. And if there’s anything left over, they get to keep it, as profit.
No perverse incentives here!
Meanwhile, medical doctors and behavioral health professionals are paid on a fee-for-service basis. Provide a service/procedure, send a claim, and get paid (hopefully). And under Medicare “Advantage,”
- If you are contracted/in-network, the Advantage payer can legally reduce your fee below what you would have been paid by Original Medicare for the same service.
- Whether you’re in or out of network, the Advantage payer will withdraw the 2% sequester amount – but does it get paid back to the US Treasury?
If you’re into reading law, here are the answers. But as usual, it’s wordy and requires fluency in Medicare-ese, so I’ll summarize.
- Because MA plans are paid by capitation, the sequester works differently. The government determines the per member/per month enrollment payment, and then subtracts 2%. Of course, I’m sure the lobbyists just request a higher raise to compensate.
- MA plans withholding the 2% from providers -both in and out of network- is legal. In the case of a network provider, whether the Part C (Advantage) payer will withhold the sequester has to be stated in the provider’s contract.
- What the MA plan does with the 2% they withhold from providers is “at their discretion” as long as they “adhere to their legal obligations.” Right. I’m sure they all faithfully return it!
The government giveth, and the government taketh away.
So how is the great 2026 Medicare Advantage Payday being justified?
From the CMS announcement: “This growth rate is largely driven by the growth in Medicare Fee-For-Service (FFS) per capita costs.” Translation: Per enrollee, medical costs are higher.
And they’re determining THAT, from those “risk adjustment” audits that plague you. The goal of those audits is to look for every possible diagnosis to give their members – making them look sicker. Which justifies the Medicare Advantage payday.
You have to answer the risk adjustment audits – but you don’t have to enable the payday! Read here to find out how.
As always, if you have an insurance issue that plagues you, I’m happy to help!
