CMS’s Advance Notice Signals Margin Pressure for MA Payers—And Providers Are Next in Line

CMS has released the Calendar Year (CY) 2027 Advance Notice of Methodological Changes for Medicare Advantage capitation rates and Part C/Part D payment policies. This Advance Notice precedes the final rate announcement (expected April 2026) and signals key financial directions for Medicare spending and program incentives.

The Notice indicates a modest nominal revenue increase, coupled with tighter risk documentation controls. This underscores a regulatory environment that is increasingly intolerant of margin expansion driven by coding intensity rather than true clinical complexity. For health plans, this recalibration places renewed pressure on medical cost management at a time when utilization and cost trends continue to rise, setting the stage for a more operationally demanding and margin-sensitive era.

High-Level Financial Takeaways

Payment Stability vs. Growth:

The proposed CMS net average year-over-year payment increase is only ~0.09% in 2027. When factoring in expected risk-score trends, underlying payments are expected to reflect an average change of ~2.54%. The nominal increase reflects CMS’s focus on payment accuracy and fiscal prudence rather than broad rate growth. Health plans will likely face profitability pressure as medical cost trends continue outpacing payment increases.

Coding & Risk Score Normalization:

One of the biggest announcements built into the Advance Notice is related to Chart Reviews. As stated by CMS, "beginning in CY 2027, CMS proposes to exclude all diagnoses submitted on unlinked chart review records (CRRs) from risk score calculation." This change may have major revenue implications for payers and providers that conduct extensive chart reviews and rely on this revenue. It is particularly concerning for new members as they lack the claims history and present likely gaps that providers will have difficulty closing.

Beneficiary & Market Dynamics:

Insurer stocks declined significantly on release. This adds further headwinds to an already difficult climate, where profitability has fallen by more than 50% over the last two years for publicly owned health insurers as Medical Loss Ratios (MLRs) have risen from 85% in 2023 to 90% in 2025. Insurers have blamed unanticipated medical trends and revenue headwinds. The 2027 Advanced Notice indicates continued revenue pressure on MA plans headed into next year, unless the Final Notice provides more relief than this preliminary guidance. We expect this pressure to extend beyond payers to providers as well.

Without a concerted effort to build the infrastructure, processes, and technology required to accurately forecast and respond to emerging MLR shifts, organizations will remain reactive in a margin-compressed environment.

What Will Change the Tide

With coding intensity narrowing, forecast confidence is becoming a real margin lever and actuarial transparency between payers and providers is moving from a “nice to have” to a critical foundation for risk deals in 2026 and beyond. Without the infrastructure to deliver a single source of financial truth and accurate, timely forecasting, this environment may continue. But, is this a problem that AI could solve?

AI use has been expanding for administrative overhead costs, but less attention has been given to Actuarial AI Assistants that can provide forecast confidence and aid in controlling spend and MLR. Actuarial AI provides foundational support in four key areas that have significant potential to help both payers and providers improve their financial and clinical results:

1. Accurate contract design and pricing are the foundation of a successful risk arrangement. Too many contracts in the market today are improperly priced and settled. Leverage expertise and technology to make sure risk deals are fair, accurate, and measurable.
2. Actuarial analysis of current and projected financial performance should be tied to actual contract rules. At Arbital, we avoid “analysis paralysis” by tying analytics back to bottom-line financials specific to actual risk deals and experience.
3. Native language querying can answer any analytics question in seconds when guided by actuarial AI workflows and logic. Waiting on a backlogged finance/actuarial/med econ team? Individuals no longer need to code to query databases. Leverage an AI-equipped actuarial platform to do the heavy lifting for you and get answers at your fingertips.
4. Actionable insights designed to identify avoidable and impactful areas of spend before they occur. Successful deployment of predictive modeling suites have supported MLR improvements across clients by identifying avoidable spend in advance.

With significant margin pressure, it is more important than ever to accurately price risk while leveraging the latest actuarial-grade technology to provide actionable analytics, and identify proactive approaches to improve bottom-line events. This is true for both payers and providers. With Actuarial AI, providers and payers can allocate resources more effectively and drive MLR improvements despite material headwinds.