Medicare Advantage payments increase but retirees may still feel the squeeze

Medicare Advantage payment rates for 2026 are coming in higher than initially expected.

But that doesn't necessarily mean retirees will see richer benefits or lower premiums, said Jae Oh, a CFP and author of Maximize Your Medicare, in an interview with TheStreet.

The Centers for Medicare and Medicaid Services increased payments to plans to about 2.7%, up from earlier projections that were below 1%.

The move offers relief to insurers facing rising health care costs. Still, those costs are increasing faster than the new payment rate, which could continue to pressure plan offerings.

As a result, some Medicare Advantage plans may trim benefits, reduce plan availability, or make less visible changes that enrollees won't notice until they use certain services.

At the same time, premiums are unlikely to fall, and drug cost changes under Part D could create new pressure for some retirees, particularly those with mid-range prescription expenses.

Below is a transcript of the interview with Oh, edited for clarity and brevity.

Medicare Advantage payment increase and what it means

Robert Powell: The latest rule from the Centers for Medicare and Medicaid Services signals a notable shift when it comes to Medicare Advantage payments to insurers. Jae, last time we spoke, the number was quite low, but it's now been boosted. What do we need to know?

Jae Oh: It's a great relief to Medicare Advantage carriers. When we first spoke, the indication seemed to be even lower than 1%. That has been increased to about 2.7%, which is quite a bit higher.

That said, it doesn't sound like much. But the reality is that the operating margins of Medicare Advantage plans are already quite low. Increasing the payment rate helps cushion some of the potential damage in benefits that Medicare Advantage members might otherwise experience.

Robert Powell: There was concern that benefits – including supplemental benefits like dental, vision, fitness, and hearing – could be reduced. Does this higher payment level help preserve those?

Jae Oh: The issue is that health care inflation is running higher than 2.7%. So even with the increase, plans are still operating under pressure.

You have two forces at work. First, the payment rate is not keeping up with overall health care costs. Second, there are ongoing changes in risk-adjustment methodology.

Together, that likely means benefit packages could still narrow. The number of available plans in a given county could decline. Consumers may not notice the impact until they actually try to use certain benefits - over-the-counter allowances or dental, for example.

Premiums and plan comparisons

Robert Powell: Do you expect this higher payment amount to translate into lower premiums?

Jae Oh: Probably not. I don't expect premiums that have already been introduced to go away.

Part of the reason is what's happening on the Medigap side. Premiums there have increased sharply – often in the mid-teens or higher year over year.

So even if a Medicare Advantage plan goes from zero to $20 a month, that increase is still modest compared with what some Medigap enrollees are experiencing.

Part D drug cost changes

Robert Powell: What about Part D drug costs and how they're evolving?

Jae Oh: For people taking generic medications, the outlook remains very good. Costs are still quite low and competitive.

But once you move into higher-tier drugs, things get more complicated.

Under the Inflation Reduction Act, Part D out-of-pocket costs are capped at $2,100 in 2026, which is a major benefit for people with very high drug costs.

The pressure is in the middle. People whose annual drug costs fall in the $1,000 to $1,500 range may feel more of a squeeze. Plans may increase pricing on those tiers to offset the capped exposure on very high-cost drugs.

A case-by-case decision

Robert Powell: Anything else worth emphasizing?

Jae Oh: Yes. Broad statements about Medicare Advantage being "bad" or "good" don't hold up.

These decisions are highly individualized. Plan quality, costs, and benefits vary by location and by person. It's not something you can generalize across the country.

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This story was originally published May 2, 2026 at 12:17 PM.