The OTC (over-the-counter) card showed up in the mail in 2022 with $100 on it every quarter. By 2024, it was $75. This year it's $50. The senior holding the card didn't make a switch, but her existing plan changed.
Roughly half of America's seniors are enrolled in Medicare Advantage (MA), the private-plan side of Medicare. Plans compete for them on extras: OTC cards, food allowances, rides to appointments, gym memberships, dental, vision, and more. They compete because the underlying medical coverage is largely standardized. And those extras became a vendor economy.
Those vendors all sell into MA plans, and all of their revenue traces back to plan benefit budgets. To understand why those budgets are shrinking, you have to understand how plans got paid to grow them.
Average quarterly OTC cap among plans with a committed cap, 2022–2026
MW analysis of CMS Plan Benefit Package filings.
For a decade, Medicare Advantage plans received higher payments for members with more documented diagnoses. Plans invested heavily in capturing those diagnoses. Some of that work happened in clinical encounters, and some happened through retrospective chart reviewChart reviewThe practice of going back through patient records to identify diagnoses that were present but not billed during a clinical encounter. Under the 2027 final rule, diagnoses found this way will no longer count toward a plan's risk score unless the member is switching between MA plans.. Both practices were permitted under existing rules, and the largest plans were able to build substantial operations around the retrospective approach.
In January 2026, CMS proposed heavily scaling back what it pays for diagnoses coded that way. By April, the final rule had landed, softer than proposed, but structural. The 2026 benefit filings, locked the previous fall, already showed compression underway. The 2027 designs are being shaped now.
CMS proposed $22 billion in cuts. The final rule landed at $6.84 billion.
The 2027 advance noticeAdvance notice / rate noticeEvery spring, CMS publishes a rate notice that tells MA plans what they'll be paid the following year. The advance notice comes first (typically January), followed by the final rule (typically April). Plans use these numbers to design benefits for the coming year. proposed two changes. The first was a recalibration of V28V28The risk adjustment model CMS uses to calculate how much it pays an MA plan for each member, based on that member's diagnoses. V28 replaced the previous model (V24) through a multi-year phase-in; 2026 was the first year V28 was fully in effect. that would have reduced risk scores by 3.32%, targeting diagnoses where coding intensity had outpaced clinical severity. The second targeted chart review directly, excluding diagnoses found through retrospective review rather than during a patient visit. An additional 1.53%, roughly $7 billion of the $22 billion total.
The final rule withdrew the V28 recalibrationRecalibrationA proposed adjustment to V28 that would have further reduced risk scores by targeting diagnoses where coding intensity had outpaced clinical severity. CMS withdrew it from the 2027 final rule but signaled it intends to apply a recalibration for 2028., citing the need to give plans more time to adjust, but signaled the agency intends to apply it for 2028. The larger cut is deferred, not cancelled. What CMS finalized was the chart review exclusion, with a carve-out for members switching between MA plans and a smaller exclusion for audio-only diagnoses.
Advance notice (proposed)
Final rule
Together, the finalized changes reduced 2027 MA payments by an estimated $6.84 billion, roughly a third of the proposed amount. The rate landed at 2.48%, below medical cost inflation but better than the 0.09% plans had been modeling against since January.
The 2026 filings were locked before the advance notice published. The cuts visible there reflect cumulative pressure from earlier rate cycles. The next cycle is what plans are designing for now.
UnitedHealth's MA membership dropped 965,000 from the start of the year, with the company guiding to a full-year contraction of nearly 1.3 million. Tim Noel, CEO of UnitedHealthcare, told analysts on the company's first quarter earnings call that the 2026 approach prioritized margin recovery and product stability, with a deliberate trade-off in membership growth.
Plans had options for absorbing the rate pressure. They could cut margins, exit markets, raise member cost-sharing, reduce provider rates, or thin out supplemental benefits. Most are doing some combination. The filings show supplemental benefits absorbing a significant share of the response.
About 35 million MA members are enrolled in plans that offer an OTC benefit. In 2026, 2,403 plans commit to a specific quarterly dollar amount in their filings, averaging $81 per quarter, down from 4,948 committed-cap plans at an average of $91 in 2024. OTC is the only supplemental benefit where plans disclose a dollar amount at all, which is why it's the one category where plan-level strategy is visible.
When a plan commits to a quarterly cap, that number is visible to everyone: the vendor, the competing plan, the member at enrollment. Vendors can benchmark across carriers and use one plan's disclosed cap as leverage against another. When the cap disappears from the filing, the plan still has a budget, but the vendor can no longer see it, benchmark against it, or use it in the next negotiation.
Most plans historically committed to a quarterly dollar cap. A smaller group always filed without one. Through 2024, that second group was a rounding error: 91 plans in 2022, 148 in 2024. In 2025 it jumped to 1,092. In 2026 it hit 1,841.
OTC plans filing without a committed quarterly cap, 2022–2026
MW analysis of CMS Plan Benefit Package filings.
Plans stopped committing to a number, but they didn't stop offering the benefit.
UnitedHealth ran 488 OTC plans with committed quarterly caps in 2022. By 2024 that had grown to 560, with an average cap of $79. In 2025, the count dropped to zero. Every UHG OTC plan moved to the no-cap structure: 758 plans filing without a committed dollar amount. In 2026, still zero committed-cap plans, 626 no-cap.
Humanafollowed a year behind. Hundreds of committed-cap plans through 2024, average cap between $64 and $82. By 2025, down to 236. By 2026, zero. All 546 of Humana's OTC plans now file without a committed cap.
Two of the largest MA insurers in the country no longer commit to a quarterly OTC dollar amount on any of their plans. They can adjust the allowance, narrow what's eligible, or restructure the benefit between filing cycles, and none of it is visible in a public document.
Aetna took the opposite approach. It kept the committed-cap structure and absorbed the pressure through the dollar amount itself. Average quarterly cap peaked at $119 in 2023 and sits at $47 for 2026. The median dropped from $90 to $30, a 67% cut in three years. The benefit is still legible at enrollment, just smaller.
Anthem ran a hybrid. Committed caps stayed, with average dollars compressing from $107 at peak to $72 in 2026, 33% off peak. Anthem also filed its first 58 no-cap plans for 2026, a migration that lags UHG by one year.
Average committed quarterly OTC cap by carrier, 2022–2026 (null = moved to no-cap structure)
MW analysis of CMS Plan Benefit Package filings. Lines end where carriers moved to no-cap structure.
Note: CMS redesigned the PBP filing structure for 2026. The OTC fields used in this analysis carried through unchanged. The no-cap migration at UHG and Humana is a plan design choice, not a reporting artifact.
The two strategies create different conditions downstream. A no-cap plan can manage the allowance, narrow the eligible product list, and reshape the benefit without amending its filing. A compressed-cap plan keeps the number visible, just smaller. Everyone, senior, vendor, competitor, works against the same disclosed amount. A vendor concentrated in UHG and Humana is negotiating without knowing the number on the other side of the table. A vendor concentrated in Aetna knows the number, it's just smaller every year.
Humana's first quarter call confirmed the direction. CEO Jim Rechtin said the funding gap relative to medical cost trend is larger heading into 2027 bids than it was a year ago, and that the company will adjust benefits to stay on track for a 3% margin by 2028. Margin recovery first, retention second, growth a distant third.
Meals peaked at 55% of plans offering in 2024 and dropped to 45% for 2026. Transportation fell from 44% to 36% in a single year. Fitness held, off only three points from peak, running the lowest unit cost per member and the highest perceived value.
OTC is where this is visible because of disclosure rules. Meals, transportation, dental, vision are running the same play with less daylight.
Special Needs Plans tell a separate story. SNP plans maintained OTC offering rates above 90% in four of the last five years. The exception was 2023, when a wave of new D-SNP filings launched without OTC and added it back by 2024. Non-SNP plans dropped from 56% to 45% over the same window. The benefit is more protected where the member population is sickest and most expensive to lose. But SNP plans compressed dollar amounts inside those offerings at the same pace. A vendor with SNP-heavy exposure has more contract durability and less pricing power, a different risk profile than the one in the headline numbers.
The model recalibration was deferred, not withdrawn. The pressure that prompted these benefit cuts is paused.
If you're underwriting a supplemental benefits vendor today
What share of this vendor's plan revenue is concentrated in carriers that no longer disclose a committed benefit amount? The negotiating dynamics are different when the budget is visible versus when it isn't, and plan concentration determines which side of that line the vendor sits on.
Does the vendor's SNP mix insulate it from benefit elimination, or just from the first round of cuts? SNP plans held offering rates while non-SNP dropped, but they compressed dollars inside those offerings at the same pace. Durability of the contract is a different question than durability of the margin.
Is this vendor's 2027 contract structure priced for the current rate environment or the one CMS has signaled for 2028? The model recalibration was deferred, not withdrawn. The pressure that prompted these cuts is paused.
The 2026 plan filings show the cuts already in effect. Vendor contracts for 2027 are being renegotiated now. The model recalibration that CMS deferred is signaled for 2028, which means the rate pressure that prompted these cuts is delayed, not resolved.
V28
The risk adjustment model CMS uses to calculate how much it pays an MA plan for each member, based on that member's diagnoses. V28 replaced the previous model (V24) through a multi-year phase-in; 2026 was the first year V28 was fully in effect.
Recalibration
A proposed adjustment to V28 that would have further reduced risk scores by targeting diagnoses where coding intensity had outpaced clinical severity. CMS withdrew it from the 2027 final rule but signaled it intends to apply a recalibration for 2028.
Chart review (retrospective chart review)
The practice of going back through patient records to identify diagnoses that were present but not billed during a clinical encounter. Under the 2027 final rule, diagnoses found this way will no longer count toward a plan's risk score unless the member is switching between MA plans.
Advance notice / rate notice
Every spring, CMS publishes a rate notice that tells MA plans what they'll be paid the following year. The advance notice comes first (typically January), followed by the final rule (typically April). Plans use these numbers to design benefits for the coming year.
PBP (Plan Benefit Package)
The annual filing each MA plan submits to CMS detailing the benefits it will offer, including supplemental benefits like OTC, meals, and transportation. PBP filings are public and are the primary data source for this analysis.
Rate data
Enrollment
Carrier commentary
- UnitedHealth Group Q1 2026 earnings call
- Humana Q1 2026 earnings call