Medicare Advantage health benefit costs rose by a median of 9.6% in 2025, while administrative expenses held nearly flat. The result was narrowing margins at the same plans that now cover more than half of all eligible Medicare beneficiaries in the US.
The findings come from Sherlock Company's 2026 Medicare benchmark edition. The Pennsylvania-based health plan analytics firm has tracked plan administrative costs for 29 consecutive years. Its September 2026 report draws on surveys of 11 Medicare-focused health plans serving 2.1 million Medicare Advantage and Special Needs Plan members and 15.4 million members in total, with Medicare products representing a median of 35% of plan revenues. Year-over-year trend figures are based on the six plans that participated continuously in both years.
Per member administrative costs declined by 0.3% in 2025 on a constant-mix basis, the slowest rate of change since 2015. Median administrative expenses across all 11 participating plans were $56.76 per member per month, or 8.5% of premium equivalents, down from 9.3% the prior year. The fall in the administrative cost ratio came not from cost cuts but from near double-digit premium growth, which expanded the denominator while administrative expenses held flat.
Health benefit costs moved the other way. Among the continuously participating plans, the Medicare Advantage health benefit ratio increased by an average of 2.6 percentage points and by a median of 1.9 points. Margins narrowed even as administrative growth hit its lowest level in a decade.
Medicare Advantage is no longer a niche retiree benefit option. Among large employers that offer retiree health benefits to Medicare-age retirees, 56% did so through a Medicare Advantage plan in 2024, more than double the share in 2017, according to a Kaiser Family Foundation (KFF) analysis published in November 2024. Lower cost per retiree was the most commonly cited reason for the shift.
That cost case depends on MA plans remaining financially sustainable enough to maintain competitive benefit packages and market presence. Plans held administrative costs flat through staffing ratio reductions. The median plan cut FTEs per member by 5.1%, while health benefit costs rose at nearly 10%. Those pressures are already visible in the market. The number of Medicare Advantage prescription drug plans available to the average beneficiary fell from a peak of 36 in 2024 to 32 in 2026, according to a March 2026 KFF analysis, and the expansion of supplemental benefits has stalled.
The underlying driver is CMS payment rates, which MA insurers have said have not kept pace with rising medical costs - a tension that regulators and the industry have been contesting through the 2025 and 2026 rate-setting cycles.
Employer group programs built around zero-premium or low-premium MA plans are seeing those plan parameters tighten, with supplemental benefits such as dental, vision, over-the-counter allowances, and meal delivery among the categories that have been reduced or eliminated as plans respond to cost pressure. Plans absorbing near double-digit health benefit cost growth have limited room to maintain the benefit structures that made MA attractive as an employer retiree vehicle. The broader employer healthcare cost environment reinforces the pressure. Healthcare cost projections for 2027 point to employer cost increases near or above double digits, and the MA margin squeeze adds another variable to a benefits portfolio already under significant cost pressure.
