Medicare Advantage Payments Get an Update: Bill Adjusts Rates for Areas with Big Hospital Wage Hikes Starting 2026

This bill, the "Protecting Options for Seniors Act of 2025," tweaks how the government calculates payments for Medicare Advantage (MA) plans. Specifically, it targets areas where local hospital wages have jumped significantly, causing standard payment calculations to potentially fall short. Starting in 2026, the legislation requires an increase in the payment growth rate for MA plans operating in areas where the average hospital wage index (a measure of local hospital labor costs) rose by more than 20% in the preceding year (using 2025 data as the first benchmark). The goal is to make MA plan payments better reflect the actual cost of care in these specific high-cost zones.

Why the Adjustment? Fixing a Payment Puzzle

Think of the hospital wage index like a local cost-of-living adjustment, but specifically for hospital labor. When this index changes dramatically in an area, usually due to reclassifications or significant wage increases at local hospitals, the standard formulas used to predict Medicare Advantage costs can get thrown off. This bill steps in because if MA plans aren't paid enough to cover the rising costs of care driven by higher hospital wages in their service area, it could potentially impact the benefits they offer or even their decision to operate in that area. This legislation tries to fix that potential mismatch by directly boosting the payment growth factor where these large wage index spikes occur.

The Nitty-Gritty: How the Boost Works

The proposed increase isn't a flat rate. It's calculated using a formula outlined in Section 2 of the bill. This formula considers two main things: how much the area's wage index jumped compared to previous years, and a weighting factor. This factor looks at how much Medicare pays local hospitals directly (under Parts A and B for things like hospital stays and outpatient services) compared to the total Medicare spending in that area. Essentially, it tries to measure the local impact of hospital costs on overall Medicare expenses. The adjustment kicks in starting with payment calculations for the year 2026.

The Balancing Act: 'Benchmark Neutrality' and What It Means

A critical piece of this puzzle is the requirement for "benchmark neutrality." In plain English, this means the adjustments made to boost payments in high-wage-growth areas should not increase the overall, national average spending on Medicare Advantage. It's like adjusting slices of a pie – if some slices get bigger, others might have to get slightly smaller, or the adjustment mechanism needs careful calibration to ensure the total pie size remains the same. This raises a key question: how will this neutrality be achieved? The bill doesn't detail the exact mechanism, which could mean adjustments in other areas or complex calculations behind the scenes. It's a significant implementation challenge to ensure fairness across all regions.

Bonus: More Transparency on Hospital Payments

As a side effect, the bill also requires Medicare to start separately calculating and publishing the total amounts paid under Part A and Part B to each individual hospital located in these MA areas, beginning with data for 2026 (as per amendments to Section 1853(b)(4)). While this might not directly change a senior's MA plan overnight, it adds a layer of transparency to where Medicare dollars are flowing at the hospital level, potentially providing useful data for researchers and policymakers down the line.