Credit: Centers for Medicare and Medicaid Services
Medicare program managers saw the same sobering surge in health care claims in late 2024 that employers saw — and that misery is now helping the shareholders of health insurers like Centene, CVS Health, Elevance, Humana and UnitedHealth.
Officials at the Centers for Medicare and Medicaid Services announced Monday that they will be increasing payments to the Medicare Advantage plan issuers by an average of 5.06% in 2026.
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That's up from 3.7% for 2025 coverage, and it's up from 2.23% proposed for 2026 in an "advance notice," or rate announcement preview, posted in January.
CMS used 2024 claim costs to calculate the 2026 subsidy. Officials had only three quarters of 2024 claims when they prepared the 2026 advance notice.
Medicare claim costs were so high in the fourth quarter that they pushed the "effective growth rate," a measure of the change in the cost of care, to 9.04% in the final announcement, from 5.93% in the advance notice.
CMS may pay Medicare Advantage plan issuers and other private plan issuers about $550 billion in 2026, and the increase in the effective growth rate could translate into about $25 billion in additional revenue, rather than $10 billion in additional revenue.
Investors reacted by causing stock prices for the big Medicare plan issuers — including CVS, the parent of Aetna — to rise more than 1%, even as the S&P 500 index was falling more than 1.5%.
Claims: CMS officials gave no details about the claim trends they are seeing, but the big increase in the Medicare effective growth rate could be more a cause for employers and their benefits advisors to grind their teeth than to run out to buy health care stocks.
Insurers like Sun Life and Voya reported during their earnings call that they faced a big, unexpected, complicated increase in claims in the second half of 2024, and especially in the fourth quarter.
Sun Life and Voya sell stop-loss insurance, or arrangements that protect self-insured employer health plans against catastrophic losses. Stop-loss program executives said they asked for big increases in 2025 premiums because of the surge.
The new Medicare Advantage 2026 rate announcement shows that CMS saw what the stop-loss issuers saw.
Employer group waiver plans: The Medicare Advantage program helps cover a surprisingly large number of U.S. employers' retirees.
Related: More employers moving retirees to Medicare Advantage: Here's why
Enrollment in employers' "employer group waiver plans," or group Medicare Advantage plans, increased to 5.4 million in 2023, from 5.1 million in 2022, according to the Urban Institute.
The new 2026 rate announcement also includes updated factors employers can use to estimate their 2026 plan subsidy payments.
One thing the announcement does not include is an agreement to let the EGWP coverage sponsors team up through organizations like chambers of commerce to form multi-employer EGWP coverage providers.
Several commenters asked CMS to let businesses create what amount to association Medicare Advantage plans.
"CMS notes that membership in EGWPs is outside the scope of this document," officials said in a review of comments on the advance 2026 rate notice. Officials' response seems to imply that addressing up the association Medicare plan idea could be within the scope of another CMS document.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
