Trump Proposal Signals Medicare Austerity

While President Donald Trump went easy on insurers in his broader health plan, he's drawing the line at trouble-ridden Medicare Advantage.

Health insurers cheered last year when the Trump administration agreed to pump $25 billion more into private Medicare plans in 2026, hoping it signaled a turnaround from the Biden administration’s more modest yearly increases.

Instead of the big boost the insurers say they badly need, the Trump administration on Monday offered an increase of less than 1 percent, or $700 million, in 2027.

The announcement has left insurers distressed about the future of Medicare Advantage, the privately run alternative to traditional Medicare, as seniors’ medical costs have skyrocketed over the past few years. It also showed that the mercurial Trump, who largely spared insurers from new government regulation in the Great Healthcare Plan he announced last week, has other levers to inflict pain. Trump’s proposal sent insurers’ stocks plummeting Tuesday.

About half of seniors have enrolled in Medicare Advantage plans. Insurers said the meager pay raise Trump has proposed could prompt more of them to pull out.

“This administration has talked about the need for stability in Medicare Advantage and predictable payments, and we absolutely agree that without stability and predictability, seniors can't have the peace of mind that they're going to be able to afford their health care,” said Rebecca Buck, spokesperson for the Better Medicare Alliance, a Medicare Advantage advocacy group.

“That's why it's so important that we get to a better rate in this proposal, with a final rate that reflects the actual costs and utilization in the Medicare Advantage program right now,” she added.

The 0.09 percent pay bump for 2027 — compared to a 5 percent bump for 2026 — comes as an independent congressional agency has found Medicare Advantage is overpaid by about $76 billion a year compared with traditional Medicare. That is largely driven by a process called upcoding, MEDPAC has found, where insurers inflate the severity of patients’ health conditions to secure higher federal payments. Trump wants to crack down on that as well, requiring billing codes to be linked to patient appointments.

Insurers were hopeful that the health agency led by Mehmet Oz, who has for years been a vocal proponent of Medicare Advantage, would propose a favorable pay bump — a belief that was reinforced by recent comments from top officials at his Centers for Medicare and Medicaid Services.

"Medicare Advantage has been destabilized, speaking plainly," Chris Klomp, the director of Medicare, said two weeks ago at the J.P. Morgan Healthcare Conference. "We care about stability. We need that to be predictable. We need folks to be able to take risks, but they need to know that we're going to be there. We're going to pay consistently, we're going to set consistent policies. We are extremely focused on that."

Insurers say Monday’s proposal contradicts that and hope they can convince the administration to reconsider before it finalizes the 2027 rates this spring.

“It doesn't match the stated goals,” said a health insurance industry executive who was granted anonymity to discuss insurers’ thinking. “It will be important to get the final notice in a better place to provide that stability and affordability for seniors, particularly as medical costs and utilization continue to rise.”

In a statement to POLITICO on Tuesday, Klomp said Medicare Advantage “is an important part of the future of Medicare.”

“We are focused on ensuring that it continues to provide excellent value to beneficiaries while also seeking to ensure its long-term sustainability and stability,” he said.

Health policy experts POLITICO spoke with suspect the pay proposal is a result of overpayment estimates provided by the independent congressional agency, called the Medicare Payment Advisory Commission, as the Trump administration looks for ways to cut federal waste.

“CMS is responding to evidence about coding intensity and selection by continuing to chisel away at payment policy to address longstanding concerns,” said Tricia Neuman, executive director of the Program on Medicare Policy at KFF, a health policy research organization.

The administration’s proposal also seeks to tackle upcoding — a bipartisan priority in Congress that insurers have opposed. The insurance plans now review patients’ charts to add new diagnoses, arguing the reviews ensure patients receive proper care for their ailments. The diagnoses factor into insurers’ risk scores for a patient, and the higher the score, the more money a plan gets from the government.

CMS is proposing to bar insurers from using the chart reviews to increase risk scores unless they are tied to a patient appointment. The proposal comes amid concerns that plans sometimes chart inaccurate diagnoses, leading to inappropriate payments.

Sens. Bill Cassidy (R-La.) and Jeff Merkley (D-Ore.) have proposed to crack down on chart reviews in their No UPCODE Act, which was introduced last March but has not advanced. Cassidy told POLITICO in a statement he’s spoken with Oz about the bill.

“When companies upcode, patients lose and taxpayers pay more,” he said. “It’s good to see President Trump and CMS moving in the same direction, protecting Medicare, cutting waste, and keeping care affordable.”

Trump’s proposal is sure to unleash a lobbying firestorm from the insurance industry over the next few months as the companies scramble to convince the administration to amend the pay rate before it’s finalized — usually in early April. It’s typical for CMS to adjust the payment rates slightly before finalizing them.

Insurers are expected to emphasize to CMS that the pay proposal as it stands would force them to cut benefits or raise the premiums they charge seniors.

“We will continue to work with CMS to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors’ benefits and access to care,” UnitedHealthcare CEO Tim Noel said during the company’s earnings call on Tuesday. “That would be a deeply unfortunate result for a program that already is under funding pressure from the previous administration, despite its track record of success serving seniors and taxpayers.”

Insurers will also emphasize the proposal is not likely to address what’s emerged as a key Trump priority ahead of the midterm elections: affordability. The companies will urge CMS to keep in mind the political optics of what they say amounts to a “cut” to the program that could result in higher premiums for seniors, a key voting bloc.

“It could certainly, if finalized, have negative consequences on seniors’ affordability, and that's front of mind for, most importantly, 35 million seniors who are counting on the program,” said the health insurance industry source who was granted anonymity.

But insurers’ warnings could be overblown, policy experts said. For years, the companies said the Biden administration’s modest yearly pay increases would deteriorate benefits for seniors, but Medicare Advantage plans are still generally more profitable than other insurance segments, like Obamacare and employer-sponsored insurance, and older Americans still have a great deal of choice over their coverage within the program.

The Trump administration’s pay bump is not a cut to the program but rather a “right-sizing” of taxpayer-funded insurance, said Carrie Graham, the director of the Medicare Policy Initiative at Georgetown's Center on Health Insurance Reform. The for-profit insurance companies are “not going to be forced to cut benefits,” she added.

“They have a choice to make: Can you tolerate lower profit? Will your investors tolerate that? Or will you choose to cut benefits and raise costs for beneficiaries?” Graham said.

Robert King contributed to this report.