Medicare Risk Adjustment: RAF, HCCs, and 2026 Updates

What Is Medicare Risk Adjustment and Why Does It Matter?

Medicare risk adjustment is a statistical model used by the Centers for Medicare & Medicaid Services (CMS) to calculate and predict expected healthcare costs for beneficiaries enrolled in Medicare Advantage (MA) plans. The goal is to ensure that insurance plans receive fair compensation based on the acuity and health risk of their enrollees, rather than just on the coding aggressiveness of providers. The system increases payments for those likely to incur higher expenses due to chronic or serious health conditions and decreases payment for healthier beneficiaries. This mechanism discourages plans from avoiding sicker, more costly individuals-a practice known as “cherry picking”-and helps promote equitable access to care for all enrollees.

The importance of Medicare risk adjustment has only grown as more Americans enroll in Medicare Advantage plans, which are expected to see substantial payment increases-between 4.33% and 5.06%-in 2026, driven by demographic shifts and a 2.10% average risk score rise. However, risk adjustment also faces scrutiny: recent Congressional reports and benchmarking results have called out potential overpayments linked to aggressive coding and upcoding in some plans, making accurate documentation and compliance a top priority for providers and coders alike.

Key Components: HCCs, MEAT Documentation, and Models

Hierarchical Condition Categories (HCCs)

At the core of Medicare risk adjustment lies the concept of Hierarchical Condition Categories (HCCs). HCCs are clinically meaningful groups of diagnoses drawn from approximately 10,000 ICD-10-CM codes and mapped into nearly 260 categories. These categories capture chronic and complex health conditions such as diabetes, congestive heart failure, depression, and various cancers. The “hierarchical” aspect reflects how patients with more severe or complex variations of a disease are counted only at the highest relevant level, thereby avoiding double counting when multiple diagnoses in the same clinical family appear.

All clinically validated diagnoses, regardless of whether they come from inpatient, outpatient, or qualified non-physician sources (such as psychologists), contribute equally to an individual’s HCC profile. This approach prevents the overvaluation or undervaluation of certain care settings and ensures that the RAF-risk adjustment factor-truly reflects each patient’s health status, not just the complexity of their care environment.

Risk Adjustment Factor (RAF) Calculation

The RAF score is the linchpin of the Medicare risk adjustment process. It sums up a beneficiary’s demographic variables-such as age, gender, disability, and Medicaid status-with weighted HCCs. Patients considered higher risk (older age, multiple chronic conditions) will naturally have a RAF score >1.0, translating to higher monthly capitation payments to a plan. Conversely, healthier individuals with few or no chronic conditions will have a RAF <1.0, resulting in lower plan payment. CMS multiplies each plan’s base capitated payment per member per month (PMPM) by the individual’s RAF score to determine final reimbursement.

For example, if the base PMPM is $900 and the beneficiary’s combined demographic and HCC factors result in a RAF of 1.30, the plan receives $900 x 1.30 = $1,170 per month to manage that member’s care. This approach enables plans to cover services for sicker or higher-cost populations and supports equitable access.

MEAT Documentation

To qualify a diagnosis for HCC consideration, it must be supported by proper chart documentation that demonstrates the provider Monitored, Evaluated, Assessed, or Treated (MEAT) the condition. This documentation standard has become central to compliance, with CMS and the Office of Inspector General (OIG) conducting frequent audits (RADV-Risk Adjustment Data Validation) to ensure accuracy.

• Monitored: Tracking or surveillance of a condition over time (e.g., blood sugar checks for diabetes patients).
• Evaluated: Reviewing test results, reviewing medication efficacy, or ordering diagnostic studies.
• Assessed: Considering how the condition impacts care or prognosis (e.g., depression’s impact on medication adherence).
• Treated: Prescribing medications, making referrals, or actively managing the patient’s therapy.

If a diagnosis is cited but evidence of MEAT is lacking in the record for the service year, the HCC will not count towards the patient’s RAF, potentially reducing plan payments or risking repayments following RADV audits.

2026 Model Updates: CMS-HCC V28 and Beyond

Beginning in 2026, CMS will fully implement the V28 CMS-HCC model (having phased it in from 2023-2025). V28 refines HCC groupings, excludes unreliable diagnostic codes, and places greater weight on conditions that most precisely predict costs. While this change affects all MA plans, specific rules apply for end-stage renal disease (ESRD) plans and Programs of All-Inclusive Care for the Elderly (PACE): ESRD continues with the 2023 model, while PACE blends 10% V28 and 90% older factors. Part D risk adjustment will reflect Inflation Reduction Act provisions as well.

This shift is expected to increase overall plan payments by $21 billion in 2026 due to higher member acuity and improved RAF calculation, but is offset by normalization and coding intensity adjustments designed to curb overpayments. MA plans should also note schedule changes: risk data from 2025 will inform mid-year 2026 and final (June 2027) payments.

How It Works in 2026: RAF, HCCs Process

1. Data Collection: MA plans and providers must collect and submit all relevant diagnoses from 2025 face-to-face encounters and fee-for-service claims. Both initial (mid-year) and final (June 2027) risk scores are calculated from this data set, so accurate and timely documentation is essential.
2. HCC Mapping: All valid ICD-10-CM codes are mapped to the updated V28 HCC hierarchy. If a member has multiple codes within a hierarchy (e.g., both “chronic kidney disease stage 3” and “chronic kidney disease stage 5”), only the highest category is counted to avoid duplicate or excessive risk scoring.
3. RAF Calculation: CMS computes RAFs for each beneficiary by combining demographic variables with the sum of the weighted HCCs. Adjustments are made for coding intensity and national averages to ensure fairness across plans.
4. Payment Adjustment: The member’s RAF score is multiplied by the CMS-determined base payment rate, producing a final PMPM amount for each enrollee. These amounts flow to the MA plan in regular intervals, with updates reflecting finalized scores.
5. Compliance and Audits: Plans undergo periodic RADV audits. Diagnoses captured solely via health risk assessments or lacking MEAT documentation are excluded from payments, reducing the risk of overstatement.

Providers, coders, and plans must remain vigilant about these evolving requirements. For further insights into how Medicare covers health needs beyond risk adjustment, see Will Medicare Pay for Long Term Care? 2026 Coverage Facts and Florida Medicare Health Plans 2026: Top Options & Coverage.

Challenges, Optimization, and Future Trends

Common Challenges in Medicare Risk Adjustment

• Overcoding and Upcoding: Risk adjustment has unintentionally incentivized some plans to aggressively code or upcode diagnoses, resulting in higher-than-justified payments. Notably, a Senate investigation into UnitedHealth Group uncovered billions in excess funding attributed in part to coding practices, prompting CMS to exclude risk assessment-only diagnoses from plan submissions and to strengthen audits.
• Administrative Burden: The shift to mandatory encounter data submission for all plans, including PACE and cost contracts, has increased the reporting workload for administrative teams. Encounter data platforms (RAPS, EDS) must be regularly updated and monitored for errors.
• Documentation Gaps: Inadequate MEAT documentation continues to expose plans to recoupment during RADV audits. Provider education is crucial to bridge the knowledge gap and avoid negative financial repercussions.
• Gaming the System: Some organizations now view risk adjustment as a business unto itself, focusing efforts on coding maximization rather than holistic patient care.

Optimization Strategies

• Training on V28 and ICD-10: Keeping coding staff updated on the V28 model and ICD-10 changes ensures more accurate HCC assignment. CMS and external vendors now offer regular updates and scenario-based training modules.
• Workflow Redesign: Embedding real-time HCC identification and MEAT prompts into EHRs reduces missed opportunities, while regular chart reviews help catch documentation lapses before submission deadlines.
• Provider Education: Ongoing education for clinicians on documentation best practices, especially focusing on chronic disease management, supports higher RAFs while helping avoid over-coding pitfalls. For providers or coders new to Medicare, resources such as Signing Up for Medicare for the First Time: Complete Guide offer foundational knowledge.
• AI and Software Optimization: The rise of risk adjustment software and AI-powered benchmarking (e.g., “HCC optimization AI”) assists plans in tracking coding practices, detecting anomalies, and flagging missing MEAT elements. Looking forward to 2026, “Medicare risk adjustment software” will likely incorporate machine learning to support real-time RAF projections and compliance audits.

Future Trends: CMS, Part D, and Data Integrity

After the full implementation of V28 in 2026, CMS aims for greater stability in model design to foster predictability for plans and beneficiaries. Notably, CMS decided against pausing the final phase-in for V28 despite advocacy from plan sponsors, as such an action would have triggered an estimated $3.4 billion in extra outlays.

Further reforms seek to address coding differences between fee-for-service and MA, while Part D adjustments reflect changes required under the Inflation Reduction Act-such as capping out-of-pocket drug costs-which will be reflected in updated risk scores and plan premiums. As CMS pushes to blend FFS and MA risk data and continues to exclude unreliable or one-time diagnoses, plans should focus on robust, longitudinal documentation.

For beneficiaries considering their options, it is crucial to understand not just risk models but also the network of providers accepting Medicare Advantage plans in their area, and ancillary coverage such as medical alert systems.

Medicare vs. Other Programs (Medicaid/ACA)

Program	Risk Adjustment Use	Key Differences
Medicare (MA)	CMS-HCCs/RAF for capitated payments; V28 in 2026; demographics + ~260 HCCs.	Focuses on elderly/disabled; inpatient/outpatient equal weight; ESRD/PACE specifics.
Medicaid	HCCs for chronic risk stratification; similar mapping but state variations.	Broader populations; less emphasis on capitated MA-style payments.
ACA Marketplace	HCCs applied to predict costs/outcomes.	Younger adults; drives down costs via chronic focus, but no MA capitation.

All three programs use HCCs to unify chronic condition reimbursement structures, but Medicare’s risk adjustment-anchored by the CMS-HCC model and the RAF score-remains the most detailed and consequential for payment and compliance. This complexity makes it crucial for coders, plans, and providers to stay updated, especially as CMS pivots toward value-based care models, more rigorous auditing, and ongoing program reforms. For deeper guidance on Medicare plan structures and what to look for when choosing coverage in 2026, check out Florida Medicare Health Plans 2026: Top Options & Coverage.