Insights

On April 6, 2026, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2027 Medicare Advantage (MA) and Part D Rate Announcement. The text of the regulation can be found here. A CMS fact sheet is available here. A CMS press release is available here. The regulation is effective June 1, 2026, and will apply to MA and Part D coverage beginning January 1, 2027.

MA: PAYMENT UPDATES

CMS stated that the final policies are projected to increase MA payments by 2.48%, or more than $13 billion, in CY 2027. When CMS’s estimated MA risk score trend, attributable to factors such as population changes and coding practices, is included, CMS stated that the increase is 4.98%. This marks a substantial change from the CY 2027 Advance Notice, in which CMS projected a 0.09% increase, or more than $700 million, and a 2.54% increase when the estimated MA risk score trend was included.

In the Advance Notice, the effective growth rate was 4.97%. In the final Rate Announcement, CMS increased that figure to 5.33%. Rebasing and re-pricing, which had been listed as “TBD” in the Advance Notice because the average geographic adjustment index had not yet been finalized, is reflected as -0.17%. The estimated impact of changes in Star Ratings remained -0.03% in both the proposed and final rules, and the estimated impact of diagnosis source changes likewise remained -1.53%. By contrast, the “risk model revision and normalization” line changed from -3.32% in the Advance Notice to -1.12% in the final announcement, reflecting CMS’s decision not to move forward with the proposed updated MA risk model for CY 2027 (discussed below).

CMS stated that the increase in the effective growth rate was primarily due to additional data and updated assumptions. CMS explained that the update reflected additional Original Medicare program experience and incurred dates through the fourth quarter of 2025. The Rate Announcement further explains that the final non-ESRD fee-for-service United States per capita costs for both Part A and Part B reflect experience and incurred dates through the fourth quarter of 2025. In contrast, the Advance Notice relied on experience through the second quarter of 2025 for Part A and the third quarter of 2025 for Part B.

CMS also finalized the statutory minimum MA coding pattern difference adjustment of 5.90% for CY 2027. This was proposed in the Advance Notice and finalized without change. Because CMS used the same 5.90% factor for CY 2026, there is technically no year-over-year payment impact associated with that item.

MA: RISK ADJUSTMENT

The most significant difference between the Advance Notice and the final Rate Announcement is CMS’s decision not to implement the proposed updated 2027 CMS-HCC risk adjustment model for non-PACE MA organizations.

In the Advance Notice, CMS had proposed a new CMS-HCC model calibrated on 2023 diagnoses and 2024 expenditures. In the final Rate Announcement, however, CMS stated that it will continue to use the 2024 CMS-HCC risk adjustment model for CY 2027. CMS explained that it continues to believe it is important to update the MA risk adjustment model regularly, but that it is retaining the 2024 model for CY 2027 to provide the MA market with additional time to adjust to the completed phase-in of the 2024 CMS-HCC model.

That decision also altered the normalization approach reflected in the final announcement. In the Advance Notice, CMS proposed normalization factors for the proposed 2027 CMS-HCC model using a multiple linear regression methodology and average historical fee-for-service risk scores from 2021 through 2025. Under that proposal, CMS stated that the proposed 2027 CMS-HCC model normalization factor would be 1.058 and that the 2017 CMS-HCC model normalization factor used for PACE would be 1.207.

In the final Rate Announcement, CMS instead stated that, for all CMS-HCC risk adjustment models, it calculated normalization factors using a four-year simple linear regression methodology and average historical fee-for-service risk scores from 2022 through 2025. CMS listed the final normalization factors as 1.079 for the 2024 CMS-HCC model, 1.202 for the 2017 CMS-HCC model, 1.072 for the 2023 ESRD Dialysis model, 1.145 for the 2019 ESRD Dialysis model, 1.119 for the 2023 ESRD Functioning Graft model, and 1.209 for the 2019 ESRD Functioning Graft model.

In the final Rate Announcement, CMS finalized the exclusion of diagnoses from audio-only encounters and from unlinked chart review records but added an exception for beneficiaries who switch from one MA organization to another from one year to the next. CMS stated that, under the 2024 MA model, the impact of excluding diagnoses from unlinked chart review records, except switchers, is -1.53%. CMS also stated that, without the switcher exception, the impact would have been -1.78%. In addition, CMS stated that the isolated average impact of excluding diagnoses from audio-only services is 0.00%. CMS separately stated that the exclusion of diagnoses from unlinked chart review records does not apply to PACE organizations for CY 2027. For PACE, CMS said it will continue the transition to encounter-data-based payment but will do so through blended models and without applying the unlinked chart review record exclusion to the portion of payment that still depends on pooled RAPS, encounter, and fee-for- service diagnoses.

MA: MISCELLANEOUS

• PACE: The Advance Notice proposed that CY 2027 PACE risk scores would be calculated using a 50/50 blend of the 2017 CMS-HCC model and the proposed 2027 CMS-HCC model. In the final Rate Announcement, CMS instead stated that CY 2027 PACE risk scores will be calculated using a 50/50 blend of the 2017 and 2024 CMS-HCC models. CMS similarly finalized PACE frailty scores using a 50/50 blend of frailty factors associated with the 2017 and 2024 CMS-HCC models, rather than the 2017 and proposed 2027 models described in the Advance Notice.
• SNPs: For CY 2027, CMS will continue to use the frailty factors associated with the 2024 CMS-HCC risk adjustment model to calculate frailty scores for FIDE SNPs. In the Advance Notice, CMS had proposed updating the frailty factors to align with the proposed 2027 CMS-HCC model, but CMS did not finalize that model in the Rate Announcement.
• ESRD: For ESRD, CMS stated that it will continue to use the 2023 ESRD CMS-HCC models for non-PACE organizations in CY 2027. For PACE organizations, CMS stated that it will calculate ESRD risk scores as a 50/50 blend of the 2023 and 2019 ESRD CMS-HCC models. CMS also stated that it will continue to set MA ESRD rates on a state basis.
• Puerto Rico: CMS finalized its Puerto Rico rate-setting policies for CY 2027, including the continued use of rates based on the relatively higher costs of Original Medicare beneficiaries with both Parts A and B, as well as a zero-claims adjustment. Using updated 2020–2024 data, CMS found that 13.9% of Puerto Rico fee-for-service beneficiaries with both Part A and Part B had no Medicare claim reimbursements in a given year, compared with 6.1% nationwide outside the territories, and applied a 4.4% adjustment to the pre-standardized Puerto Rico fee-for-service rates for the CY 2027 ratebook. This is more definitive than the Advance Notice, which stated only that CMS was considering whether to continue the adjustment while the updated study was being completed.

PART D: BENEFIT PARAMETERS

CMS finalized the CY 2027 Part D defined standard benefit parameters as described in the Advance Notice. The final Rate Announcement states that the deductible and annual out-of-pocket threshold are updated by applying the CY 2027 annual percentage increase to the CY 2026 values and rounding as required by statute. CMS’s final tables show an annual percentage increase of 13.65% and a September CPI increase of 3.00%.

CMS finalized a standard deductible of $700 for CY 2027, up from $615 in CY 2026, and a standard annual out-of-pocket threshold of $2,400, up from $2,100 in CY 2026. CMS also reiterated that the CY 2027 standard Part D benefit continues to operate as a three-phase benefit consisting of the deductible, initial coverage, and catastrophic coverage phases, because the coverage gap phase was eliminated beginning in CY 2025.

PART D: PREMIUM STABILIZATION

In the Advance Notice, CMS discussed the statutory IRA premium stabilization framework and stated that the CY 2027 base beneficiary premium could not exceed the CY 2026 base beneficiary premium of $38.99, increased by 6%, or $41.33. CMS also noted, however, that individual plan premiums may increase by more than 6%. CMS further stated that direct subsidy amounts would continue to reflect the effect of premium stabilization on the base beneficiary premium and on basic Part D beneficiary premiums.

In the final Rate Announcement, CMS did not pre-announce additional voluntary premium stabilization support for CY 2027 participating PDPs. Instead, CMS stated that it cannot determine whether additional premium stabilization may be necessary until CY 2027 bids are received and analyzed. CMS further stated that, if any additional premium stabilization is provided for CY 2027 participating PDPs, it will announce that support no later than the annual summer 2026 release of the national average monthly bid amount, the Part D base beneficiary premium, and related Part D bid information.

PART D: RISK ADJUSTMENT

CMS finalized the updated RxHCC model for non-PACE Part D sponsors largely as proposed. CMS stated that the final model reflects IRA-related changes to the Part D benefit that will take effect in CY 2027, including an increased manufacturer discount for specified small manufacturers, phased in over time. CMS also stated that the model is calibrated to more recent data, specifically 2023 diagnoses and 2024 costs.

In the final Rate Announcement, CMS also stated that it will continue to adjust gross drug costs to account for maximum fair prices for selected drugs for which a maximum fair price is in effect for the initial price-applicability year, 2026. CMS further stated that the final model distinguishes the MA-PD and PDP populations through separate continuing-enrollee segments, which CMS said improves predictive accuracy.

CMS also finalized the Part D source-of-diagnosis policies and normalization policies substantially as proposed. For non-PACE organizations, CMS stated that CY 2027 Part D risk scores will be calculated using diagnoses from encounter data and fee-for-service claims, excluding diagnoses from audio-only services and unlinked chart review records, with an exception for beneficiaries who switch between MA organizations from one year to the next. CMS also finalized separate normalization factors for MA-PD plans and PDPs, calculated using the multiple linear regression methodology, and listed the final values as 1.109 for MA-PD plans and 1.005 for PDPs. CMS stated that it is finalizing separate normalization factors for PDPs and MA-PD plans as proposed, without an adjustment for demographic or other differences between the sectors.

MA & PART D: STAR RATINGS

CMS stated that the CY 2027 Rate Announcement includes the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D improvement measures and the Categorical Adjustment Index for the 2027 Star Ratings.

The final Rate Announcement also includes detailed content on 2027 Star Ratings. CMS stated that four new or updated measures are being added beginning with the 2027 Star Ratings: Colorectal Cancer Screening; Care for Older Adults – Functional Status Assessment; Concurrent Use of Opioids and Benzodiazepines; and Polypharmacy: Use of Multiple Anticholinergic Medications in Older Adults.

CMS also stated that three measures are being removed beginning with the 2027 Star Ratings: Care for Older Adults – Pain Assessment; Medication Reconciliation Post-Discharge; and Medication Therapy Management Program Completion Rate for Comprehensive Medication Review. CMS further stated that the respecified Colorectal Cancer Screening measure is being treated as a new measure and that Care for Older Adults – Functional Status Assessment is returning to the Star Ratings after a substantive specification change and is likewise being treated as a new measure.

In addition, CMS stated that the updated Statin Therapy for Patients with Cardiovascular Disease measure will be removed from the Star Ratings and remain on the display page. CMS also stated that the Medication Therapy Management Program Completion Rate for Comprehensive Medication Review measure will remain on the display page for measurement years 2025 and 2026 before returning to the Star Ratings as a new measure beginning with the 2029 Star Ratings.

CMS further stated that, beginning with the 2027 Star Ratings, it will use data from Part C reporting requirements to confirm the completeness of the Independent Review Entity data used in the two appeals measures and will apply scaled reductions if data integrity issues are identified. CMS also stated that, beginning with the 2027 Star Ratings, it will change the method for calculating the Categorical Adjustment Index when there is a contract consolidation. Finally, CMS stated that Table VI-1 no longer includes measures that had been considered for the Excellent Health Outcomes for All reward because CMS will not implement that reward and will instead retain the historical reward factor.

On April 3, 2026, the White House released its fiscal year 2027 (FY 27) budget request for the Department of Health and Human Services (HHS) and the HHS budget in brief. The budget requests $111.1 billion in discretionary budget authority for HHS for 2027, a $15.8 billion, or 12.5 percent decrease, from the 2026 enacted level. This memo focuses on discretionary budget authority rather than program-level funding to distinguish between the president’s request and mandatory funding sources.

The next step in the budget process is for Congress to consider the request. This will involve HHS Secretary Kennedy coming to Congress to testify before the House and Senate Appropriations Committees as well as committees with jurisdiction over health care policy, such as the House Energy and Commerce Committee, the House Ways and Means Committee, the House Education and Workforce Committee, the Senate Finance Committee, and the Senate Committee on Health, Education, Labor, and Pensions. Congress had significant difficulty passing FY 26 appropriations bills. We foresee similar problems in passing FY 27 funding as well.

OVERVIEW

Like the president’s FY 26 budget request, this budget request calls for a reorganization of HHS by establishing the Administration for a Healthy America (AHA). This new agency would combine the General Departmental Management (GDM), Office of the Assistant Secretary for Health (OASH), the Health Resources and Services Administration (HRSA), the Substance Abuse and Mental Health Services Administration (SAMHSA), and several centers and programs from the Centers for Disease Control and Prevention (CDC). The administration argues that the creation of this new agency will help prioritize programs to improve nutrition and food and drug quality and safety, prevent chronic disease, and save approximately $5 billion.

The budget request calls for reductions in discretionary budget authority for the following agencies: the Administration for Children, Families, and Communities (ACFC) (-$6.8 billion), the Administration for Strategic Preparedness and Response (ASPR) (-$365 million), Advanced Research Projects Agency for Health (ARPA-H) (-$555 million), the Food and Drug Administration (FDA) (-$48 million), the CDC (-$484 million), the National Institutes of Health (NIH) (-$3.4 billion), and the Office of Inspector General (OIG) (-$20 million).

In contrast, the administration calls for an increase in funding for the Centers for Medicare and Medicaid Services (CMS) program integrity measures (+$35 million) and for the Indian Health Services (IHS) (+$1.1 billion). Please see the table below, which provides an agency-by-agency comparison of the FY 27 budget request compared to the FY 26 budget request, along with links to relevant congressional justification documents.

Agency	FY 27 Discretionary Budget Authority Request (in Millions of $)	Change from Enacted FY 26 Budget (in Millions of $)
Administration for a Healthy America	14,673	+14,673[1]
Administration for Children, Families, and Communities	28,680	-6,856
Administration for Strategic Preparedness and Response	3,337	-365
Advanced Research Projects Agency for Health	945	-555
Centers for Medicare and Medicaid Services: Program Integrity	976	+35
Centers for Medicare and Medicaid Services: Program Management	3,700	-437
Food and Drug Administration	3,306	-48[2]
Centers for Disease Control and Prevention	5,280	-484
HHS Office of Inspector General	175	-20
Indian Health Service	9,094	+1,109
National Institutes of Health[3]	41,164	-3,480

[1] The President’s FY 26 budget requested $14,058,000,000, which was not enacted.

[2] The proposed budget includes a net increase of $232 million, which is due to an increase in user fees, not the total discretionary budget authority.

[3] As of April 6, the NIH has yet to publish its congressional justification document, but this link goes to the NIH Office of Budget.

ADMINISTRATION FOR A HEALTHY AMERICA (AHA)

The AHA is a proposed new agency that would combine GDM, OASH, HRSA, SAMHSA, and several CDC centers and programs. The organization would include the following components: Primary Care, Maternal and Child Health, Mental and Behavioral Health, HIV/AIDS, Health Workforce, Policy, and Research and Oversight, which includes the Surgeon General. The budget request eliminates several existing programs within each agency that would be incorporated into the AHA. These include the following:

From HRSA: Healthy Start, Early Hearing Detection and Intervention, Emergency Medical Services for Children, Ryan White Part F, Ryan White Special Projects of National Significance, Rural Hospital Flexibility Grants, State Offices of Rural Health, Rural Hospital Stabilization, Rural Hospital Provider Assistance Program, Family Planning, Congressionally directed spending projects, and 14 workforce programs, including some nursing workforce programs and Medical Student Education.

From CDC: All Chronic Disease Prevention and Health Promotion activities except for Cancer Prevention and Control programs and Alzheimer’s Disease, and the following Injury Prevention and Control programs: Youth Violence Prevention, Adverse Childhood Experiences, Firearm Injury and Mortality Prevention Research, Elderly Falls, Drowning, Other Injury Prevention Activities, and Injury Control Research Centers.

From SAMHSA: Mental Health Awareness Training; Healthy Transitions; Infant and Early Childhood Mental Health; Mental Health Children and Family Programs; Consumer and Family Network Grants; Mental Health System Transformation; 5cProject LAUNCH; Primary and Behavioral Health Care Integration Programs; Mental Health Crisis Response Partnership Program; Homelessness Prevention; Mental Health Criminal and Juvenile Justice Programs; Assertive Community Treatment for Individuals with Serious Mental Health Illness; Homelessness Technical Assistance; Minority AIDS; Seclusion and Restraint; Minority Fellowship Program; Tribal Behavioral Health Grants; Interagency Task Force on Trauma-Informed Care; Eating Disorder Identification, Treatment, and Recovery; Children and Family Programs; Strategic Prevention Framework; Sober Truth on Preventing Underage Drinking; Drug Abuse Warning Network, and Congressionally-directed spending projects.

From GDM and OASH: Office of Population Affairs, Teen Pregnancy Prevention, Secretary’s Minority HIV/AIDS Fund, Kidney X, Stillbirth Task Force, and Sexual Risk Avoidance.

The budget also includes investments across AHA to align with Secretary Kennedy’s Make America Healthy Again Initiative. These include:

• $316 million for rural-focused grant programs and technical assistance, including $145 million for the Rural Communities Opioid Response Program
• $19 million for the Prevention Innovation Program for Tribal Communities to support tribes, tribal organizations, and urban Indian health organizations
• $20 million for the Chronic Care Telehealth Centers for Excellence Program and $8 million for the Telehealth Nutrition Services Network Grant Program
• $6.8 billion in discretionary funding to provide substance abuse prevention, treatment, and recovery services, as well as support for mental health services
• $4.6 billion for a new Behavioral Health Innovation Block Grant, which consolidates the Community Mental Health Services Block Grant, Substance Use Prevention, Treatment, and Recovery Services Block Grant, and the State Opioid Response program
• $80 million for the Behavioral Health and Substance Disorder Resources for Native Americans Grant Program
• $788 million in discretionary funding for health workforce programs focused on strengthening the workforce in rural and underserved areas and supporting behavioral health training, including $130 million in discretionary funding for the National Health Service Corps
• $923 million in discretionary funding for maternal and child health programs formerly managed by HRSA

ADMINISTRATION FOR CHILDREN, FAMILIES, AND COMMUNITIES (ACFC)

The FY 27 budget request recommends combining the Administration for Children and Families (ACF) and the Administration for Community Living (ACL) into one agency: the ACFC. The FY 27 budget request calls for the elimination of the following programs: Community Services Block Grant programs, Chronic Disease Self-Management Education, Senior Medicare Patrol Program, University Centers for Excellence in Developmental Disabilities, Developmental Disabilities Projects of National Significance, Limb Loss Resource Center, the Paralysis Resource Center, Area Agencies on Aging, the National Center for Benefits Outreach Enrollment, and the White House Conference on Aging. It includes the following funding for programs administered through ACFC:

• $54 million to support tribal elders through nutrition and caregiver support programs formerly administered by the ACL
• $414 million for the Home and Community-Based Supportive Services program
• $55 million for the State Health Insurance Assistance Program

ADMINISTRATION FOR STRATEGIC PREPAREDNESS AND RESPONSE (ASPR)

The FY 27 budget request for ASPR aims to streamline and simplify federal and state funding tools, protect against natural and man-made health threats, and promote domestic manufacturing of critical medicines. The FY 27 budget request provides the following to ASPR:

• $1.8 billion for medical countermeasure research and development through programs administered by the Biomedical Advanced Research and Development Authority (BARDA)
• $327 million, an increase of +$325 million above FY 26, in no-year funding to support procurement, storage, and annual operational costs of the Strategic Active Pharmaceutical Ingredient Reserve
• $1 billion in flat funding for the Strategic National Stockpile

ADVANCED RESEARCH PROJECTS AGENCY FOR HEALTH (ARPA-H)

The FY 27 budget request is organized around five themes: 1) Addressing Chronic Disease; 2) America-Made Manufacturing and Rural Access; 3) Proactive Approaches to Healthy WellBeing; 4) Healthcare Security, Efficiency, and Transparency; and 5) American Leadership in Frontier Health Technologies. Specifically, the FY 27 budget request includes several goals within these categories, including:

• To create the Treating Hereditary Rare Diseases with in Vivo Precision Genetic Medicines (THRIVE) program to develop integrated platform technologies to accelerate precision treatments for diseases at the genetic level
• To transform manufacturing technologies, processes, and business models for domestic medical products and ensure scalable manufacturing for personalized therapies and critical medical supplies
• To continue investing in Artificial Intelligence (AI)/Machine Learning (ML) to track and remediate toxins and AI and longitudinal data approaches to determine root causes of chronic diseases
• To develop biohybrid systems to restore full function to damaged or diseased tissues, real-time identification and visualization of neural circuits, and quantum imaging technologies

CENTERS FOR MEDICARE AND MEDICAID SERVICES (CMS)

Program Integrity

The FY 27 budget request includes a number of requests and initiatives intended to strengthen efforts to ensure program integrity within CMS. These include the following:

• $976 million for the Health Care Fraud and Abuse Control (HCFAC) Program, which includes $740 million for the CMS, $138 million for the U.S. Department of Justice, and $98 million for the HHS OIG
• A planned ramp-up of oversight of Medicaid programs through expanded audits and investigations, and establishing new processes to support law enforcement and recover the overpayment of funds

Program Management

The FY 27 budget request also includes funding for CMS program management, which administers programs such as Medicare and Medicaid. This includes the following:

• $811 million to carry out operational needs and beneficiary rights guaranteed by Original Medicare (Parts A & B)
• $385 million for the National Medicare Education Program
• $112 million for Medicare Parts C & D administrative needs to support rulemaking, information technology systems, and timely appeals
• $155 million for Medicaid and CHIP administrative operations, including $25 million for CMS to explore investing in a scalable and modernized Medicaid system and tools to support state systems with the goal of improving transparency in and access to Medicaid data
• $487 million for the Survey and Certification program to improve oversight frequency of health care facilities
• $21 million for the 340B program, +$8 million above FY 26, to increase oversight of the program. As in the FY 26 budget request, the FY 27 budget request recommends moving the 340B program from HRSA to CMS
• Calls to re-platform Original Medicare claims processing using a commercial claims processing system
• Calls to invest in core digital infrastructure to modernize Medicare.gov, strengthen and validate
• CMS-managed provider identity and directory services, and improve CMS’s internal data processing, security, and information-sharing capabilities

FOOD AND DRUG ADMINISTRATION (FDA)

The FY 27 budget request seeks to advance the Make America Healthy Again (MAHA) agenda by supporting food and medical product safety, strengthening foreign and domestic inspection capacities, reducing tobacco-related harm, and maintaining facilities and infrastructure. The budget proposes the reorganization of the National Center of Toxicology Research to the CDC’s National Center for Chemicals and Toxins. Additionally, the FY 27 includes the following for the FDA:

• $2 million to upgrade centralized process systems with AI/ML capabilities
• $466 million and $632 million for reviews of medical devices and human drugs, respectively
• $9 million to establish the FDA PreCheck Program to strengthen domestic pharmaceutical manufacturing

Although the FY 27 budget request proposes a decrease in discretionary spending, there is a proposed net increase in total FDA spending due to higher user fees, which support product reviews and regulatory oversight.

CENTERS FOR DISEASE CONTROL AND PREVENTION (CDC)

The budget request for FY 27 aims to refocus CDC on its core mission and foundational capacities, including data, surveillance, laboratory science, and global preparedness. The budget includes flexibility to move funding between CDC accounts through the Secretary’s transfer authority. The reasoning for this is to allow the CDC to address emerging issues or emergencies. The budget prioritizes funding for the Infection and Prevention Control Initiative and the Healthy and Safe Food Initiative.

• $1 billion to establish the National Center for Chemicals and Toxins
• $107 million (+$33 million) for the Health and Safe Food Initiative
• $219 million (+22 million) for the Infection Prevention Control Initiative
• $45 million to support an innovative biothreat detection system
• $260 million for a Public Health Infrastructure and Capacity grant to address gaps in core public health capacity and infrastructure at the state, tribal, territorial, and local levels
• $963 million for the discretionary immunization and respiratory diseases program

The budget also includes two legislative proposals: 1) to authorize CDC to set data reporting requirements to public health entities to improve capacity to detect and respond to public health threats, monitor and evaluate distribution of medical countermeasures and critical supplies, and connect communities with resources and services; and 2) to allow non-competitive conversion of fellows to employees to retain a highly skilled workforce.

HHS OFFICE OF THE INSPECTOR GENERAL (OIG)

The HHS OIG is currently focused on large-scale financial recoveries and addressing vulnerabilities in Medicaid and Medicare. The budget request proposes a 3% decrease for HHS-OIG from FY 26, reflecting a government-wide Inspector General budget reduction. The FY 27 budget request includes the following:

• $84 million in discretionary funding for Public Health and Human Services Oversight
• $98 million in discretionary funding for Health Care Fraud and Abuse Control

INDIAN HEALTH SERVICE (IHS)

In the FY 27 budget request, the administration aims to strengthen its commitment to improving tribal health and well-being through strategic investment. Specifically, the FY 27 budget request calls for the following at IHS:

• $5.5 billion for direct health care services
• $84 million to fund staffing and operating costs for 5 newly constructed health care facilities
• $287 million to continue the transition to a new electronic health record system
• $191 million to construct facilities on the IHS Healthcare Facilities Construction Priority List
• $538 million for maintenance and improvement, medical equipment, and Facilities and Environmental Health Support programs

NATIONAL INSTITUTES OF HEALTH

The budget request for FY 27 focuses on 2 research priorities: ending the chronic disease epidemic and understanding the biomarkers for aging and disease. The budget proposes to consolidate the National Institute of Drug Abuse and the National Institute on Alcohol Abuse and Alcoholism into the National Institute of Substance Use and Addiction Research. The budget also proposes the elimination of the following:

• National Center for Complementary and Integrative Health
• Fogarty International Center
• National Institute on Minority Health and Health Disparities

The budget will continue the 15% cap on indirect costs. Budget priorities are laid out below:

• $60 million in integrative chronic disease research
• $25 million to advance the understanding of causal biomarkers of aging and disease
• $60 million to scale and further operationalize the Real-World Data Platform
• $515 million in the Office of the Director’s Common Fund to support new program concepts related to cutting-edge research to cure diseases

On April 2, 2026, the Centers for Medicare & Medicaid Services (CMS) released a final rule that will revise the Medicare Advantage (MA) Program, the Medicare Prescription Drug Benefit Program (Part D), and the Medicare Cost Plan Program for Contract Year 2027 (PY27).  A CMS fact sheet can be found here.  The regulation is effective June 1, 2026, and will be applicable to MA and Part D coverage beginning January 1, 2027.

MA & Part D: Updates to Star Ratings

The Medicare Advantage (MA) and Part D Star Ratings program evaluates plan performance on a 1-to-5-star scale across up to 43 measures for MA-PD contracts, 33 for MA-only, and 12 for Part D, covering categories like outcomes, intermediate outcomes, process, patient experience, and access.  Ratings are based on CMS administrative data, enrollee surveys, and plan-submitted information.  These ratings influence quality bonus payments (QBPs) for MA plans (up to 5-10% added to benchmarks for 4+ star plans), beneficiary rebates (50–70%), marketing rules, and the way consumers are presented plan options in the Medicare Plan Finder.

In keeping with the Trump administration’s effort to deemphasize equity programs, the final rule eliminates the Biden-era Excellent Health Outcomes for All reward (formerly the Health Equity Index or HEI).  This reward—finalized in the 2023 final rule for implementation in PY 2027—was intended to incentivize high measure-level performance among enrollees with specific social risk factors (SRFs), such as dual eligibility for Medicare and Medicaid, receipt of the low-income subsidy, or disability.  For PY 2027, the Biden-era reward would have given plans an HEI score ranging from -1 to 1 based on a subset of measures, and those plans with positive HEI scores would have received a bonus added to their overall Star Rating (0.4 for the top third, 0.267 for the middle third, and 0.133 for the bottom third).  CMS finalized this provision exactly as proposed, removing the HEI/Excellent Health Outcomes for All reward while retaining the historical reward factor (which similarly rewards plans but emphasizes improvement efforts in clinical care, outcomes, and patient experience across the entire patient population).  The change applies beginning with the 2027 Star Ratings.

Continuing the administration’s deregulation theme, the final rule removes 11 of the 12 measures that were proposed for removal, starting from the 2027 measurement year.  Removals take effect for the 2028- or 2029-Star Ratings, depending on the measure.  CMS finalized these 11 removals exactly as proposed, with the sole modification that it did not finalize the proposed removal of the Diabetes Care – Eye Exam (Part C) measure (which will remain in the Star Ratings program).  The measures removed under the final rule are:

• Plan Makes Timely Decisions about Appeals (Part C, 2029)
• Reviewing Appeals Decisions (Part C, 2029)
• SNP Care Management (Part C, 2029)
• Call Center – Foreign Language Interpreter and TTY Availability (Part C, 2028)
• Call Center – Foreign Language Interpreter and TTY Availability (Part D, 2028)
• Complaints about the Health/Drug Plan (Parts C and D, 2029)
• Medicare Plan Finder Price Accuracy (Part D, 2029)
• Statin Therapy for Patients with Cardiovascular Disease (Part C, 2028)
• Members Choosing to Leave the Plan (Parts C and D, 2029)
• Customer Service (Part C, 2029)
• Rating of Health Care Quality (Part C, 2029)

Additionally, CMS finalized two technical updates to the Star Ratings program.  CMS is adding a new Part C Depression Screening and Follow-Up measure to address behavioral health gaps.  The new measure begins with the 2027 measurement year and will first affect the 2029 Star Ratings.  CMS also finalized a technical clarification (originally proposed in the CY 2026 rule) regarding contract consolidations.  This clarification specifies how enrollment-weighted measure scores are calculated when a surviving or consumed contract lacks data for a particular measure due to the consolidation (changes applicable to the 2027 Star Ratings).

As finalized, these changes will, in the aggregate, have the practical effect of increasing QBPs to plans.  Simulations using 2025 Star Ratings data (accounting for changes implemented in the 2026 Star Ratings) show 63% of contracts with no change in overall rating, 13% increasing by half a star, and 24% decreasing by half a star.  Four percent of contracts would gain QBP eligibility, and three percent would lose QBP eligibility.  The shifts in Star Rating status are projected to result in an $18.56 billion net increase in Medicare Trust Fund spending over the 2027–2036 window (0.21% of MA payments).  This is higher than the $13.18 billion estimate that appeared in the proposed rule (the difference is attributable to retaining the Diabetes Care – Eye Exam measure).  Much of that increase is still expected in PYs 2028 and 2029.

MA: Operational Reforms

Per President Trump’s executive order (EO) #14192 (“Unleashing Prosperity through Deregulation”), the final rule includes several reforms intended to reduce the regulatory burden on plans and, therefore, the marginal operational costs passed on to beneficiaries by those plans.  CMS finalized all the following changes exactly as proposed:

• Exempting account-based plans from creditable coverage disclosures: Currently, group health plans, including account-based arrangements such as Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs), must disclose their creditable prescription drug coverage status to CMS and Medicare-eligible individuals. CMS finalized the amendment to exclude these plans, as they do not directly offer drug coverage but only reimburse expenses.  In practice, this eliminates redundant paperwork for about 7,049 entities (mostly HR managers), saving approximately 585 hours and $90,266 annually.
• Rescinding mid-year notices for unused supplemental benefits: MA organizations must mail individualized mid-year notices by July 31 detailing unused supplemental benefits from the Evidence of Coverage. CMS finalized the complete rescission of this requirement.  Practically, this reduces administrative burdens, yielding annual savings of $1.36 million in printing/mailing, plus prevented one-time costs of approximately $499,000 for system updates.
• Eliminating health disparities activities in MA quality improvement programs: Under § 422.152(a)(5), MA organizations must incorporate activities to reduce health disparities into their Quality Improvement (QI) programs. CMS finalized the removal of this requirement.
• Eliminating health equity requirements for MA Utilization Management (UM) Committees: Current rules at § 422.137(c)(5) require a health equity expert on UM Committees, and §§ 422.137(d)(6)–(7) mandate annual health equity analyses of prior authorizations. CMS finalized the rescission of these provisions.  In practice, this streamlines committee operations by saving about 6,040 hours and $814,000 annually in data aggregation and posting, enabling focus on core UM functions.
• Waiving the LI NET call center hours requirement: The Limited Income Newly Eligible Transition (LI NET) program currently requires toll-free call centers to be open from 8 a.m. to 8 p.m. in all regions. CMS finalized the amendment to limit hours to 8 a.m.–7 p.m. ET, Monday–Friday.  This adjustment accounts for low call volumes and 24/7 pharmacy support, saving $800,000–$1 million annually in operational costs.
• Removing restrictions on the time and manner by which beneficiaries can have conversations with licensed agents and brokers: Current regulations impose specific timing restrictions on beneficiary outreach, including a 12-hour delay requirement between educational events and marketing events in the same location and a 48-hour waiting period between completion of a Scope of Appointment form and a personal marketing appointment. CMS finalized the removal of these timing restrictions (along with the related prohibition on collecting Scope of Appointment forms at educational events).  This change provides greater flexibility for plans, agents, and beneficiaries while preserving core consumer protections.

MA: Supplemental Benefits and Seriously Ill Beneficiary Supplemental Coverage Items (SSBCI)

Continuing its focus on reducing regulatory burden while clarifying allowable supplemental benefits, CMS finalized several targeted reforms to supplemental benefits and SSBCI administration.  CMS finalized these provisions largely as proposed (with only minor technical refinements):

• Cannabis clarification: CMS refined the regulatory language to state more precisely that cannabis products that are illegal under applicable State or Federal law are not allowable as SSBCI.
• Public posting of SSBCI eligibility criteria: CMS finalized the requirement that MA organizations publicly post their plan-developed objective eligibility criteria for SSBCI on their website to increase transparency for beneficiaries.
• Debit card rules for supplemental benefits: CMS codified and clarified requirements for administering supplemental benefits through debit cards, including real-time electronic verification at the point of sale and limiting cards to the specific plan year. CMS did not finalize the proposed prohibition on marketing the dollar value of supplemental benefits on the debit card itself.

MA: Special Enrollment Period Reforms

The MA program currently includes a Special Enrollment Period (SEP) for enrollees affected by a “significant” provider network change, such as terminations of providers or facilities, where significance is determined, case by case, by CMS and the MA organization based on factors like the scale of the termination.  Affected enrollees – those assigned to, receiving care from, or who received care within the past three months from the terminated provider – can switch MA plans or disenroll to Original Medicare, but only if notified of eligibility.  MA organizations must send termination notices, but these do not always include detailed SEP information, and separate notifications may be required for eligibility.  CMS guidance (but not rules) requires that certain other SEPs, such as those for CMS sanctions, contract violations, or exceptional circumstances, receive CMS approval.

In the PY 2027 proposed rule, CMS proposed to modify the SEP for provider terminations by renaming it from “Significant Change in Provider Network” and eliminating the “significant” determination requirement, making eligibility automatic for affected enrollees upon any no-cause provider or facility termination.  The SEP would begin in the month of eligibility notification and last for two additional calendar months, usable once per network change, with MA organizations assessing eligibility via beneficiary attestations rather than solely through 1-800-MEDICARE.  Termination notices would be enhanced to include mandatory details on SEP eligibility, start/end dates, Annual Enrollment Period (AEP), MA Open Enrollment Period (MA-OEP), Medigap guaranteed issue rights, and impacts on employer/union coverage.

CMS did not finalize these proposed modifications to the provider termination SEP.  The existing “Significant Change in Provider Network” SEP remains unchanged.  CMS acknowledged broad stakeholder interest in the topic but stated it will continue to consider the extent to which rulemaking may be appropriate in this area.

Separately, CMS proposed codifying the requirement for prior CMS approval of certain SEPs at §§ 422.66(g), 423.32(k), and 423.36(g), mandating that MA organizations obtain approval via CMS-operated mechanisms (e.g., 1-800-MEDICARE, Online Enrollment Center, or notices) before transmitting elections for specified SEPs like contract violations or sanctions.  CMS finalized this provision exactly as proposed.  The final rule adds explicit language to the affected SEP provisions in §§ 422.62(b) and 423.38(c) and corresponding limitations in §§ 422.66(g), 423.32(k), and 423.36(g) to require CMS approval prior to use of these SEPs.  This codifies longstanding policy and guidance without adding new burden.

MA: Requests for Information (RFIs)

CMS includes several RFIs in the PY27 Proposed Rule to gather public input on enhancing the Medicare Advantage program.  The Final Rule included the following commentary from CMS regarding stakeholder feedback and the agency’s reaction to the responses…

• Dually Eligible Individual Enrollment Growth in C-SNPs and I-SNPs: CMS sought comments on the significant growth in dually eligible individuals enrolling in chronic condition special needs plans (C-SNPs) and institutional special needs plans (I-SNPs) rather than dual eligible special needs plans (D-SNPs). Stakeholders expressed strong concerns about care fragmentation and recommended requiring State Medicaid Agency Contracts and D-SNP-like integration rules for plans with high dual enrollment.  CMS will consider the feedback received for potential future rulemaking.
• Future Directions in Medicare Advantage Risk Adjustment: CMS solicited input on modernizing the MA program through risk adjustment, including leveraging AI and alternative data sources for next-generation models to promote data transparency, quality improvement, competition, taxpayer savings, and fraud reduction. Stakeholders supported greater data transparency and alignment with Original Medicare data, while stressing privacy protections.  CMS will consider the feedback for possible future rulemaking or demonstration projects.
• Future Directions in Medicare Advantage Star Ratings: CMS requested feedback on simplifying and streamlining the Star Ratings program, including reducing timelines from measure development to implementation and shortening the lag between measurement years and payment application. Stakeholders supported simplification but many opposed broad measure removals due to potential impacts on oversight of SNPs.  CMS will consider the input for potential future rulemaking.
• Quality Bonus Payments in Medicare Advantage: CMS sought information to refine the Quality Bonus Payment structure and its impact on rebates, including options to shorten new-measure implementation timelines and delink bonuses from MA bids. Stakeholders provided input on refining the structure to better balance quality incentives with cost containment.  CMS will consider these comments for future policy development.
• Well-Being and Nutrition: CMS solicited input on tools and policies to improve overall health, happiness, and life satisfaction in MA, including emotional well-being, social connections, self-care, and nutrition strategies. Stakeholders offered ideas for expanding supplemental benefits related to food, housing, and social connections to support prevention and wellness.  CMS will consider the feedback received for potential future rulemaking.
• Marketing and Communications Oversight: CMS sought comments on modernizing agent/broker regulations and marketing requirements, including redefining the TPMO definition, modifying translation thresholds, and revising testimonial standards. Stakeholders offered broad support for burden-reducing changes such as adjustments to disclaimers and retention periods.  CMS will consider the feedback for potential future rulemaking.
• Other Medicare Advantage Program Areas: CMS solicited input on deregulation and simplification across various MA aspects, such as updating medical loss ratio calculations, streamlining network adequacy reviews, and revising SNP Model of Care requirements. Stakeholders expressed widespread support for further deregulation and streamlining to reduce administrative burden.  CMS will consider the comments for future efforts to streamline the program.

Part D: Implementing Certain Provisions of the Inflation Reduction Act (IRA) of 2022

The IRA significantly redesigned the Medicare Part D benefit to lower beneficiary costs, including eliminating the coverage gap phase, reducing the annual out-of-pocket (OOP) threshold starting at $2,000 (with annual indexing based on per capita Part D costs or CPI-U), and removing enrollee cost sharing in the catastrophic phase (setting it to $0 after the OOP threshold is met).  It also terminated the Coverage Gap Discount Program (CGDP) and replaced it with the Manufacturer Discount Program (MDP).  The IRA granted CMS temporary authority to implement these changes through sub-regulatory program instructions and guidance through 2026.  CMS finalized the codification of these reforms in the Contract Year 2027 final rule.

• CMS finalized the termination of the CGDP as proposed. The CGDP (under which manufacturers provided 70% discounts on applicable drugs for non-LIS beneficiaries in the coverage gap) technically terminated on January 1, 2025, but continues to handle discounts and reconciliations for drugs dispensed before that date.  The final rule permanently sunsets the program.
• CMS finalized the establishment of a new Subpart AA to codify the MDP for 2027 and beyond largely as proposed. Manufacturers must enter agreements covering all labeler codes for applicable drugs and provide 10% discounts in the initial coverage phase and 20% in the catastrophic phase (calculated on negotiated price including dispensing fees, taxes, and units), with phase-ins for specified manufacturers (based on 2021 Part D spending ≥1% or 2.5% for LIS/non-LIS) and small manufacturers (one drug ≥80% of expenditures).  The final rule includes detailed rules on aggregation, acquisitions, terminations, audits, disputes, and civil penalties, with only minor technical refinements from the proposal.
• CMS finalized the codification of OOP changes for 2027 and beyond exactly as proposed by revising § 423.100 to limit “coverage gap” definitions to 2006–2024, amending § 423.104(d)(4) for pre-2025 applicability, eliminating the initial coverage limit post-2024 (§ 423.104(d)(3)(iii)), setting the reduced OOP threshold at $2,000 for 2025 and indexing it annually (§ 423.104(d)(5)(iii)(G)–(H)), and confirming $0 cost sharing in the catastrophic phase (§ 423.104(d)(5)(i)).

In addition to the core IRA codifications described above, CMS finalized several related technical and operational updates to Part D program rules.  These include clarifications to true-out-of-pocket (TrOOP) calculations, specialty-tier cost-sharing rules, reinsurance payment methodologies, and implementation details for the Selected Drug Subsidy.  CMS finalized all these technical provisions exactly as proposed.