Medicare to Pay Insurers $13 Billion More for Advantage Plans in 2027 -- Will Your Coverage Actually Improve?

The federal government has announced it will boost payments to private insurers running Medicare Advantage plans in 2027 by $13 billion. The question now becomes whether that increase will benefit the roughly 35 million Americans enrolled in Medicare Advantage.

As you planned for retirement, you probably never thought to factor in the moving target that healthcare costs represent -- a fact that makes knowing what to expect even more important. While no one can give you a definitive answer until October, this article will cover how Medicare Advantage plans have utilized payment boosts in the past, what their legal obligations are, and what to look for during this year's open enrollment.

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What history shows

Historically, insurers have used Medicare Advantage payment hikes in varying ways. Funds not absorbed by the insurer to offset rising medical costs must be used for another purpose. Federal law allows for 15% to go toward administrative expenses and corporate profits, and plans are required to spend at least 85% of their revenue on plan-covered services -- including extra benefits, such as expanding supplemental benefits like dental, vision, and hearing coverage or reducing premiums.

The tricky bit is this: There is no direct requirement tying federal rate increases to specific improvements. In other words, you can't know how your insurer plans to spend the money until this fall's Medicare open enrollment period (Oct. 15 through Dec. 7), when 2027 plan details are published.

What you should watch for

Because insurers have flexibility in how they use additional federal funds, it's important to keep an eye on how your insurer will use theirs. Specifically, compare year-over-year changes in:

• Monthly premiums
• Out-of-pocket maximums
• Supplemental benefits, such as dental, vision, hearing coverage, and fitness
• Prescription drug formularies and cost-sharing
• Provider networks, since insurers sometimes scale down the scope of areas they cover, even while adding supplemental benefits

If your plan leaves your coverage area entirely, you'll have seven weeks of open enrollment to explore other Medicare Advantage programs (if available) or determine whether traditional Medicare will work better for you.

What's behind the increase?

Increased medical costs and an aging population may well be behind the $13 billion boost, but other issues are also at play. In an April article from Inside Health Policy, writers Dorothy Mills-Gregg and Amy Lotven point out, "MA [Medicare Advantage] stakeholders last month called on the Trump administration to prove its stated support for the program by finalizing a higher pay rate and warned that MA cuts could be a major factor in the mid-terms if seniors see fewer choices and benefits during Medicare's open enrollment period, which kicks off about a month before the election."

In other words, it may have been the perfect storm of circumstances and political pressure that led to the $13 billion jump.

Keep your eyes on the Medicare Advantage prize

What's certain is that more money will flow into Medicare Advantage in 2027. The question is whether those funds will translate into real improvements for those depending on Social Security benefits, pensions, and Medicare Advantage to pay most of their monthly bills. It appears that it will ultimately depend on what individual insurers decide to do with the $13 billion hike.

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