What determines how much Medicare pays Medicare Advantage plans in 2027

Medicare Advantage payment rates are set by the Centers for Medicare & Medicaid Services (CMS) each year based on a formula that accounts for the health status of enrolled beneficiaries, regional costs, and adjustments for plan performance. In 2027, the payment methodology will follow the same basic structure used in recent years, though the specific dollar amounts and adjustment factors change annually. The rates are not uniform — they vary significantly by county, by the health conditions of the people enrolled, and by how well each plan performs on quality measures.

The payment rate you see published is called the benchmark, and it represents what Medicare will pay a plan for each member per month. Plans use this benchmark to set their own premiums, cost-sharing amounts, and benefit offerings. If a plan's costs run lower than the benchmark, it keeps the difference or uses it to offer extra benefits. If costs exceed the benchmark, the plan absorbs the loss or adjusts benefits to stay within budget.

Key Takeaways

  • Medicare Advantage payment rates for 2027 are calculated using risk scores that reflect each beneficiary's health conditions, not a flat per-person amount.
  • Rates vary by county and are adjusted annually based on fee-for-service spending trends in that region.
  • Plans that score higher on quality measures receive bonus payments, which they may use to lower premiums or add benefits.
  • The benchmark amount affects plan premiums and what extra benefits plans can afford to offer beyond what Original Medicare covers.
  • CMS publishes final 2027 rates in early spring, and plans announce their premiums and benefits based on those rates in the fall.

How risk scores affect your plan's payment rate

Each person enrolled in a Medicare Advantage plan receives a risk score based on their diagnoses and health history. CMS uses these scores to adjust the base payment rate up or down for each member. Someone with diabetes, heart disease, and chronic kidney disease will have a higher risk score than someone with no chronic conditions, so Medicare pays the plan more for that person's care. This system is meant to prevent plans from avoiding sicker people and to account for the fact that sicker beneficiaries cost more to treat.

The risk score is calculated using data from the previous year's medical claims and diagnoses documented by doctors. If a condition is not documented in the medical record, it does not count toward the score. This is why plans often conduct health risk assessments and outreach to members — they want to identify conditions that may not have been recorded yet, which can increase the payment they receive. For the 2027 rates, CMS will use 2025 claims data to calculate risk scores, so conditions documented during 2025 office visits and hospitalizations will affect 2027 payments.

Regional variation and how your county affects the rate

Medicare Advantage payment rates are calculated separately for each county because healthcare costs and utilization patterns differ widely by geography. A county in rural Montana will have a different benchmark than a county in suburban New Jersey. CMS bases the regional rate on what Medicare spent on fee-for-service beneficiaries in that county during the previous year, adjusted for inflation and other factors. This means that if fee-for-service spending rises in your county, the Medicare Advantage benchmark for the following year typically rises as well.

The county-level rate is published as a dollar amount per member per month. Plans then bid against this benchmark. If a plan bids below the benchmark, it can use the difference to offer lower premiums or extra benefits. If a plan bids above the benchmark, it must charge a premium to cover the difference. Some counties have dozens of plans competing, which can drive bids lower. Other counties have only a few plans, which can result in higher bids and premiums.

Quality bonuses and how they change payment amounts

Plans that score well on quality measures receive bonus payments from Medicare, called quality bonus payments or quality ratings adjustments. These bonuses are based on a five-star rating system that measures plan performance on measures like medication adherence, preventive care, member satisfaction, and care coordination. A plan rated 4.5 stars or higher may receive a bonus of 5 to 10 percent of its benchmark payment, depending on the rating and CMS policy that year.

Plans use these bonus payments to reduce premiums, add extra benefits like dental or vision coverage, or improve care delivery. For 2027, plans with high quality ratings will have more financial flexibility to offer competitive benefits. Plans with lower ratings may have less room to add extras and may charge higher premiums to stay solvent. The quality ratings are published annually in October, so plans know their bonus status before they submit their bids for the following year.

When 2027 rates are announced and how they affect your choices

CMS typically announces final Medicare Advantage payment rates for the following year in early April. For 2027, the rates were announced in April 2026. Once rates are set, plans have until June to submit their bids and benefit designs to CMS. CMS then reviews and approves these bids over the summer. In October, plans announce their final premiums, deductibles, copays, and benefits for the following year, and the annual enrollment period begins.

The timing matters because it affects your options. If payment rates in your county increase, plans may be able to offer lower premiums or richer benefits. If rates decrease, plans may raise premiums or reduce benefits. By October, when you are choosing a plan for 2027, you will see the concrete premiums and benefits each plan is offering. The payment rate itself is not something you see as a member — you see only the premium you pay and the benefits you receive. But the payment rate determines what plans can afford to offer you.

How payment rates differ from what you actually pay

The Medicare Advantage payment rate is what Medicare pays the plan, not what you pay out of pocket. Your costs depend on the plan's premium, deductibles, copays, and coinsurance. A plan might receive a high payment rate from Medicare but still charge you a low or zero premium if it operates efficiently or uses bonus payments to subsidize member costs. Conversely, a plan might receive a lower payment rate but charge a higher premium if it offers richer benefits or operates in a high-cost area.

Your actual costs also depend on how much healthcare you use. If you rarely see doctors, you may pay only the premium and little else. If you have frequent hospitalizations or specialist visits, you will hit deductibles and pay copays. The payment rate affects the plan's revenue, but your out-of-pocket costs are determined by the plan's benefit design and your usage patterns.

What changes year to year in the payment formula

The basic structure of Medicare Advantage payment rates remains consistent from year to year, but several components change annually. The risk adjustment model is updated periodically to reflect new diagnostic codes and clinical evidence. The regional benchmarks change based on fee-for-service spending trends. The quality bonus thresholds and percentages may shift based on CMS policy. Coding intensity adjustments — which account for the fact that plans may document diagnoses more thoroughly than fee-for-service providers — are recalibrated regularly.

CMS also makes occasional policy changes to the payment system itself. For example, in recent years CMS has adjusted how it accounts for coding differences between Medicare Advantage and fee-for-service Medicare. These adjustments can increase or decrease the overall payment level for plans in a given year. The specific changes for 2027 are detailed in CMS's annual call letter, which is published in early spring and explains the payment methodology, quality measures, and policy changes for the upcoming year.

Frequently Asked Questions

Does a higher payment rate mean lower premiums for me?

Not necessarily. A higher payment rate gives plans more revenue, which they may use to lower premiums, add benefits, or increase profits. Some plans in high-payment counties charge high premiums anyway. The premium you pay depends on the plan's bid and benefit design, not directly on the payment rate. You need to compare actual premiums and benefits in your county to find the lowest cost option.

Can I see what the payment rate is for my county?

CMS publishes county-level benchmark rates on its website each spring. You can search by county on Medicare.gov or CMS.gov to find the base payment rate. However, the rate is technical and does not directly tell you what plans will charge. The more useful information is the actual premiums and benefits each plan offers, which are published in October during enrollment.

How do risk scores affect my premium?

Your individual risk score does not directly determine your premium. Instead, the average risk score of all members in your county affects the overall payment rate for plans in that county. Plans set premiums based on their bid against the benchmark, not on individual risk scores. However, plans may use risk data to target outreach or benefits to members with specific conditions.

What happens if a plan's costs exceed the payment rate?

If a plan spends more than it receives from Medicare, it absorbs the loss. Plans manage this risk by setting premiums and cost-sharing high enough to cover expected costs, or by limiting benefits. Some plans operate at a loss in certain counties to gain market share, but this is not sustainable long-term. If a plan consistently loses money, it may exit the market or reduce benefits.

Do payment rates affect Original Medicare?

No. Medicare Advantage payment rates are separate from Original Medicare. Original Medicare is funded through the same payroll taxes and premiums that fund all of Medicare, and its payment rates to doctors and hospitals are set independently. Medicare Advantage rates affect only the plans that participate in the Medicare Advantage program.