Medicare Advantage at the Reset: V28 Risk Adjustment, Star Ratings, and Insurer Profit Through 2026

The 2026 Final Rate Notice line by line: 5.06 percent in headline, much less in net effect #

CMS released the CY2026 Advance Notice on January 10, 2025 and the Final Rate Notice on April 7, 2025. The headline 5.06 percent effective change adds roughly 25 billion dollars in absolute outlays at current enrollment. The build is five components: a 9.04 percent fee for service growth update reflecting provider price and utilization in the FFS benchmark population, a 0.69 percent rebasing offset, a 0.55 percent statutory benchmark cap effect, a 2.10 percent MA risk score trend adjustment, and a net 0.05 percent coding pattern difference. Year three of the V28 risk adjustment phase in is fully baked, completing the transition from the V24 hierarchical condition category model.

V28 removes 2,236 ICD-10 diagnoses from the risk adjustment crosswalk, including vascular disease and arthritis codes that carriers had used aggressively under V24. CMS estimated in the CY2024 notice that V28 reduces aggregate risk scores by 3.4 percent at full phase in. In CY2026 that reduction is fully reflected in payment, while the 2.10 percent normalization further trims the effective benchmark. Carrier finance teams parse the stack as roughly a 100 to 150 basis point net headwind once realistic coding intensity is netted against the 5.06 percent headline.

The 2026 rate is a political artifact. Biden CMS set CY2024 at 3.32 percent and CY2025 at 3.70 percent, both below trend. The CY2026 notice under the Trump administration is the largest finalized increase since CY2023, but lands on a base that compressed margins for two consecutive years.

Enrollment scale and concentration: 34 million lives, two carriers running half the book #

CMS data show 33.8 million MA enrollees in March 2025, about 50 percent of the total Medicare population of 67.7 million and 54.0 percent of those eligible for Part C (beneficiaries enrolled in both Part A and Part B, the narrower base KFF uses for MA penetration). KFF projects MA share to rise to between 56 and 60 percent by 2030 under current law. Special Needs Plan enrollment grew roughly 14 percent year over year through 2024, while general population growth slowed to 4 to 5 percent.

UnitedHealth held 9.4 million MA members at year end 2024, Humana 5.6 million, CVS Aetna 4.4 million, Elevance 2.3 million, and Centene WellCare 1.5 million. The five publicly traded carriers cover roughly 70 percent of MA. Kaiser, the BCBS plans, and regional and PE backed plans hold the balance.

In CY2026, plan options compress. Humana announced in November 2024 that it would exit 560 plan options affecting roughly 10 percent of its MA membership. CVS Aetna pulled MA plans from six states for plan year 2026, focusing on rural geographies where margin recovery is slowest. UnitedHealth restructured its Optum at Risk capitated provider relationships and released some non strategic clinics. KFF estimates that 1.6 to 1.8 million MA enrollees were forced to switch plans during the CY2025 open enrollment period, and CY2026 churn may exceed 2 million.

Medical loss ratios, the 85 to 90 percent shift, and the income statement impact #

The medical loss ratio is the percentage of premium dollars spent on medical claims. The ACA minimum MLR floor for MA is 85 percent, but historical MA standalone economics ran 84 to 86 percent. From 2024 onward MA standalone MLR has run 88 to 90 percent across the publicly traded carriers, the residue of three forces. First, deferred pandemic care returned in 2023 and accelerated through 2024, with inpatient admissions, joint replacements, and outpatient procedure volume running 4 to 8 percent above 2019 baselines. Second, V28 trimmed reported risk scores faster than utilization fell. Third, GLP 1 utilization in dual eligible and chronic disease segments raised pharmacy spend, with semaglutide volumes inside MA up roughly 60 percent year over year through 2024 per IQVIA national prescription audit data.

UnitedHealth Group reported a Q4 2024 medical care ratio of 85.5 percent and full year 2024 MCR of 85.5 percent. On April 17, 2025, the company cut full year 2025 adjusted EPS guidance to 26.00 to 26.50 dollars from 29.50 to 30.00 dollars, citing higher than expected MA care activity and V28 coding pattern reset, which alone took 5 to 6 billion dollars off projected operating income. Humana reported a 2024 insurance segment benefit ratio of 90.4 percent, the highest in its public history, and initially guided 2025 adjusted EPS to 14.50 to 15.50 dollars in February 2025, well below the 20.97 dollars logged in 2023. Humana revised the 2025 outlook to roughly 16.25 dollars per share following the April rate notice.

CVS Health reported a Q4 2024 health care benefits MBR of 94.8 percent, a stress reading reflecting MA dual eligible mix and reserve strengthening. Elevance Health 2024 benefit expense ratio was 88.5 percent, with MA running roughly 200 basis points hotter than segment average. Centene reported 2024 health benefits ratio of 88.3 percent and revised 2025 guidance lower in March on Medicaid redetermination tail and MA cost trend. Cigna closed the sale of its MA book to Health Care Service Corporation for 3.7 billion dollars in Q1 2025, exiting MA before the V28 cycle completes.

Star ratings methodology, the 4 star threshold tightening, and quality bonus exposure #

The MA Star Ratings system drives the quality bonus payment, an additional 5 percent of benchmark for plans rated 4 stars or higher and roughly 5 percent of rebate retention for plans at 4.5 to 5 stars. CMS finalized methodology changes through the 2024 and 2025 rule cycles, including Tukey outlier removal at the cut point stage, the Health Equity Index reward beginning with the 2027 star year, weight rebalancing on patient experience measures, and tighter Part D adherence tolerances.

The path to 4 stars has tightened. CMS published the 2025 Star Ratings on October 10, 2024, showing 40 percent of MA Prescription Drug contracts at 4 stars or higher weighted by enrollment, the lowest share since 2017. Humana lost 4 star status on its largest contract H5216 in the 2024 ratings, regained partial ground in litigation, and re entered the 4 star band on selected contracts in the 2025 release. UnitedHealth retained 4 star or higher status on roughly 78 percent of its MA enrollment, the strongest among national carriers. The Health Equity Index, finalized in the CY2024 final rule, ties future bonus dollars to performance among low income subsidy and dual eligible populations, redirecting bonus money toward segments where MA dual special needs plans concentrate.

Economic exposure runs into the billions per affected carrier. A typical 4 star bonus delivers 1,800 to 2,200 dollars per member per year of additional benchmark headroom. Falling from 4 stars to 3.5 stars on a one million member contract translates into roughly 2 billion dollars of revenue at risk and several hundred million dollars of gross margin pressure.

Enforcement vector: DOJ False Claims Act actions, OIG audits, and 23A scrutiny of vertical models #

DOJ escalated MA fraud cases through 2024 and 2025. In May 2025, DOJ filed an amended civil complaint in United States ex rel. Poehling v. UnitedHealth Group, the long running risk adjustment upcoding case. The HHS OIG 2024 work plan flagged risk adjustment in payment year 2018 audits, with extrapolation that could surface 4 to 6 billion dollars in recoveries program wide. The Centene CCC Healthcare PBM case settled for 1.25 billion dollars across 2022 and 2023, and the CHC Christus settlement in 2024 closed at 295 million dollars on chart review upcoding.

The functional analogue to Section 23A in MA, the prohibition on self dealing across vertically integrated PBM, MA, and provider segments, has surfaced in two tracks. The FTC second interim staff report on PBMs, published in January 2025, concluded that vertical integration of OptumRx within UnitedHealth and Caremark within CVS Health was associated with material consumer cost increases, with Express Scripts also flagged. CMS proposed a CY2026 Part D rule expanding scrutiny of intra company markups on drug acquisition costs.

The combination of CMS rate stress, DOJ enforcement, and FTC scrutiny is reshaping the strategic calculus. UnitedHealth Group, which derives roughly 50 percent of consolidated operating income from Optum Health and OptumRx combined, faces concurrent margin compression in MA, antitrust scrutiny, and provider M and A integration risk. CVS Health, which earned roughly 60 percent of 2024 operating income from PBM and retail pharmacy and the balance from Aetna, is rebalancing toward the PBM as MA absorbs the rate reset. The 2026 question is whether vertical integration remains a structural advantage or becomes a regulatory liability.

Implications: hospital contracting, broker pay, PE rollups, and the supplemental benefit reset #

Hospital MA contracting leverage has shifted toward providers since 2023. Tenet, HCA, Ascension, and Mayo Clinic each reported MA contract terminations or hard renegotiations in 2024 and 2025 disclosures, with Tenet citing higher MA denial rates and slow payment. KFF and the AHA report MA prior authorization denial rates of 6 to 8 percent of submitted requests, several times higher than traditional Medicare. The 2026 cycle is shifting from rate concessions toward administrative simplification, gold card programs exempting high performing providers from prior authorization, and tighter definitions of medical necessity.

Broker compensation is the second pressure point. CMS finalized in April 2024 a 100 dollar increase in the MA broker compensation cap to roughly 632 dollars for new enrollment in most regions, while restricting marketing organization administrative payments to brokers. The intent was to remove the pull toward churn and toward plans paying marketing organizations more, a practice flagged in OIG and Senate Finance reports. Implementation was partially blocked by district court action in Texas in 2024, then reinstated for CY2026 through CMS rulemaking. Net broker take in CY2026 is roughly 10 percent below the pre 2024 baseline once marketing organization payments are netted, and several large broker organizations have announced layoffs.

Private equity rollups in regional MA, value based primary care, and home based care MA enablers have repriced. Cano Health filed for Chapter 11 in February 2024, Bright Health exited MA in 2023, and Clover Health continues to run at MLR above 90 percent. UnitedHealth completed Amedisys at 3.3 billion dollars in 2024 and LHC Group at 5.4 billion dollars in 2023, building scale precisely as MA economics tightened. The supplemental benefit segment, dental, vision, hearing, transportation, OTC cards, fitness, and meals, faces bifurcation. CMS proposed in the CY2026 rule a tighter test on Special Supplemental Benefits for the Chronically Ill, narrowing the category to evidence based interventions. The likely 2026 net is a reduction in low utilization gym and OTC card spending and a redirection toward food security, transportation, and home environment supports for chronic disease populations. The reset runs at least two more cycles, with the carriers that hold capital, V28 fluency, and contracting discipline best positioned to harvest a normalized MA program through the second half of the decade.

Sources #

• CMS, Calendar Year 2026 Medicare Advantage and Part D Final Rate Notice, April 7, 2025
• CMS, Calendar Year 2025 Medicare Advantage and Part D Final Rate Notice, April 1, 2024
• CMS, Calendar Year 2024 Medicare Advantage and Part D Final Rate Notice, March 31, 2023
• CMS, Medicare Advantage and Part D Star Ratings 2025, October 10, 2024
• CMS, Medicare Enrollment Data, Monthly Reports
• KFF, Medicare Advantage in 2025: Enrollment Update and Key Trends
• MedPAC, March 2025 Report to the Congress: Medicare Payment Policy
• CMS Office of the Actuary, 2024 Medicare Trustees Report
• Congressional Budget Office, The Budget and Economic Outlook 2025 to 2035
• UnitedHealth Group, Form 10 K for Fiscal Year 2024
• Humana Inc., Form 10 K for Fiscal Year 2024
• CVS Health, Form 10 K for Fiscal Year 2024
• Elevance Health, Form 10 K for Fiscal Year 2024
• Centene Corporation, Form 10 K for Fiscal Year 2024
• Cigna Group, Form 10 K for Fiscal Year 2024 and HCSC MA divestiture announcement
• Office of Inspector General, HHS, 2024 Work Plan and Risk Adjustment Audits
• Federal Trade Commission, Pharmacy Benefit Managers Second Interim Staff Report, January 2025
• Better Medicare Alliance, Statement on CY2026 Final Rate Notice