Medicare Advantage Payment Fix Targets Areas with Soaring Hospital Wages, Starting 2026

The “Protecting Options for Seniors Act of 2025” is a highly technical piece of legislation aimed squarely at tweaking how Medicare Advantage (MA) plans get paid. Starting with the 2026 payment cycle, the bill introduces a new mechanism to adjust MA payment rates in specific local areas where hospital costs have spiked unexpectedly.

This adjustment kicks in if an MA local area saw its weighted average hospital wage index jump by more than 20% between 2024 and 2025. Basically, if the cost of labor for hospitals in your area suddenly shot up due to reclassification, the MA plans there might get a calculated boost in their growth percentage. The logic is that the current payment system likely under-projected the true cost of providing care in those rapidly inflating areas.

The Cost-of-Living Catch-Up

If an area qualifies, the Secretary must calculate an “extra boost” for that region’s MA growth percentage. This boost isn't simple; it’s a multiplication of the change in the wage index and a complex weighting factor based on how much money flows through that area’s hospitals under specific Medicare payment sections. For instance, if you live in a city that had a major reclassification that dramatically raised hospital wages, your local MA plan might see its funding stabilized, potentially preventing cuts to benefits or provider networks that might otherwise occur due to underfunding.

Crucially, the bill also mandates increased transparency. Starting in 2026, the government must separately report the total payments made to local hospitals for Part A services (inpatient care) and Part B services (outpatient care) in its annual public notices. For policy nerds and watchdogs, this is a win, providing a clearer picture of how Medicare money is being distributed locally.

The National Budget Neutrality Requirement

Here’s where things get complicated and potentially contentious: the bill includes a strict “Benchmark Neutrality” clause. This means that while some MA areas get a financial boost, the total, enrollment-weighted average MA payment amount across the entire country must remain exactly the same as it would have been without this new rule. Think of it like a zero-sum game: if one area gets an extra slice of pie because its costs went up, that slice has to come from the rest of the national pie.

For MA plans and beneficiaries in the areas that don't qualify for the boost, this neutrality requirement could mean that their expected payment growth is capped or reduced to offset the increases given to the high-wage areas. While the intention is to correct specific payment anomalies without increasing overall federal spending, the practical effect is that one group of MA plans benefits at the expense of potential growth for others. This kind of national offset mechanism adds significant complexity and might lead to administrative disputes over how that national average is calculated and balanced.