On March 31, 2023, the Centers for Medicare & Medicaid Services (CMS) finalized several changes to Medicare Advantage in its 2024 Medicare Advantage Rate Announcement. Read below for an overview of the announcement and the payment changes it introduces.
Overview
The Medicare Advantage advance notice is a document CMS releases each year that outlines proposed changes to Medicare Advantage (MA) and Part D prescription drug plans. The 2024 Medicare Advantage advance notice was released on February 1, 2023, and was open for public comment until March 3, 2023.
CMS then released the 2024 Medicare Advantage Rate Announcement and corresponding fact sheet on March 31, 2023, incorporating and responding to public comments. The rate adjustment helps health plans understand how much they’ll get paid for the upcoming year. CMS estimated a payment increase of 3.3% from 2023 to 2024.
How Do Medicare Advantage Health Plans Get Paid?
CMS pays Medicare Advantage plans through a capitated system. Those plans earn a fixed amount per enrollee per month, regardless of how much care the enrollee uses. CMS bases the capitated payment amount on several factors, including risk score and location.
How do these rates impact Medicare Advantage Beneficiaries?
To summarize a complex topic, CMS sets rate benchmarks for each county based partly on Medicare Fee For Service spending. Health plans then bid based on their expected costs. If a bid exceeds the benchmark, the health plan typically charges the beneficiary the excess as a premium. If it’s below the benchmark, Medicare Advantage plans can earn a rebate – which will be higher if they have a Medicare Advantage Star Rating above 3.5 – that they can use to offer beneficiaries additional benefits, like dental benefits, vision benefits, transportation, fitness programs, and more.
As a result, if Medicare Advantage rates decline – or costs increase more than rates increase – insurers pass those costs on to Medicare Advantage beneficiaries as higher premiums or reduced benefits.
How did CMS estimate the 3.3% payment increase from 2023 to 2024?
When CMS released the advance notice in February, it indicated a 1.03% increase in the average Medicare Advantage capitation rate. The final rate announcement increased that amount to 3.3%.
Several factors led to that estimated payment increase:
Effective Growth Rate
The effective growth rate, as the name implies, estimates the growth of the average benchmark rate. Medicare Fee for Service spending primarily determines effective rate growth. The estimate also includes a modification that CMS will phase in over three years. CMS plans to remove Medicare Advantage-related indirect medical education and direct graduate medical education costs from the historical and projected expenditures.
The effective growth rate was 2.28%.
Change in Star Ratings
The 2023 Medicare Advantage Star Ratings used for 2024 quality bonus payments are lower than the 2022 Star Ratings due to methodological modifications and the end of the COVID-19 Public Health Emergency.
Those changes led to a 1.24% decrease in payments.
Risk Model Revisions
CMS uses Hierarchical Condition Category (HCC) risk adjustments to calculate risk-adjusted payments. The model helps ensure that Medicare Advantage plans are paid more for enrollees who are sicker and less for those who are healthier.
The risk adjustments rely on diagnosis codes, applying weights to each code. For 2024, CMS will begin to phase in a new risk adjustment model that restructures those condition categories based on the ICD-10 classification system instead of the ICD-9. It will also update the Fee for Service years underlying the model from 2014 for diagnoses and 2015 for expenditures to 2018 for diagnoses and 2019 for expenditures. CMS will apply 33% of the adjustment in 2024, not the full implementation suggested in the advance notice.
Those technical modifications should reduce payments by 2.16%.
Medicare Advantage Risk Score Trend
The Medicare Advantage Risk Score Trend is the average increase in risk scores for Medicare Advantage enrollees over time. CMS calculates the trend using Medicare Advantage risk score data over the most recently available three years. Because the risk model revisions highlighted in the previous paragraph will be phased in over the next three years, the trend in rate announcement increased to 4.4% from 3.3% in the advance notice.
Overall, the expected revenue change totals 3.32% in the rate announcement, up from 1.03% in the advance notice. Most of that increase results from phasing in the risk adjustment modifications over three years.
| Factor | 2024 Advance Notice | 2024 Rate Announcement |
|---|---|---|
| Effective Growth Rate | 2.09% | 2.28% |
| Change in Star Ratings | -1.24% | -1.24% |
| Risk Model Revisions | -3.12% | -2.16% |
| Medicare Advantage Risk Score Trend | 3.30% | 4.44% |
| Expected Average Change in Revenue | 1.03% | 3.32% |
How did the health insurance industry react to the announcement?
The industry vociferously protested after CMS released the advance notice in February. By comparison, the response was mostly positive when CMS released the rate announcement at the end of March. Margaret Murray, the CEO of the Association for Community Available Plans (ACAP) said: “We’re glad that CMS finalized a 3-year phase-in to the risk model changes in light of their potential impact on D-SNPs, and appreciate the ability to adjust to these changes over the period of time.”
Matt Eyles, the President and CEO of AHIP, a national association whose members deliver health insurance, also issued a statement, saying in part: “We appreciate that CMS recognized the serious concerns with several proposed policies in the Advance Rate Notice that would affect MA enrollees in 2024, including by phasing in changes over a period of 3 years. Health insurance providers will continue to focus on delivering affordable, high-quality, and competitive coverage choices to MA enrollees and evaluate the impact on our most vulnerable populations like dual-eligible Americans who are among the sickest and lowest-income members of our communities.”
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