CMS announces 2005 Medicare Advantage payment rates

May 11 2004

The Centers for Medicare & Medicaid Services today released the Medicare Advantage (formerly Medicare + Choice) payment rates for 2005.  The new funding is expected to help ensure that Medicare beneficiaries who count on Medicare Advantage plans will have reliable access to the additional benefits and significantly lower out-of-pocket costs typically provided by these plans.  The new funding is also likely to bring additional Medicare Advantage plans into more markets serving more Medicare beneficiaries. Because of the efficiencies achieved by many Medicare Advantage plans – such as negotiated price reductions and coordination and other management of utilization – these plans can also help keep overall health care costs down. 

CMS today also issued a new report showing the impact of Medicare Advantage plans in Medicare and the plans’ impact on Medicare beneficiaries.   The report shows that beneficiaries in Medicare Advantage spend, on average, 34 percent less than beneficiaries in traditional fee-for-service Medicare.  The new CMS report also demonstrates that Medicare Advantage plans are popular with low-income beneficiaries who are struggling to afford up-to-date medical care and that the recent payment increases have led to improved benefits and reduced cost sharing for Medicare Advantage enrollees. 

These substantial savings in beneficiary out-of-pocket costs mean that total health care spending (counting all payments by the government, beneficiaries, and other sources) may be significantly lower in Medicare Advantage plans.  For example, a recently published study showed that total spending was significantly higher for beneficiaries in fee-for-service Medicare who also purchased the most popular Medigap plan (Plan F), compared to beneficiaries in Medicare Advantage plans, as a result of the substantially lower beneficiary out-of-pocket costs in Medicare Advantage plans.

"Medicare Advantage offers more comprehensive benefits at a lower cost for Medicare beneficiaries, leading to lower costs for our health care system," Health and Human Services Secretary Tommy G. Thompson said.   "It's no wonder that millions of beneficiaries, particularly those with limited means and no access to subsidized Medigap coverage, depend on these plans.  They struggle the most to pay for their medical needs, and they need our help in getting reliable, affordable health care options now more than ever."

Under the Medicare Modernization Act, the rate that each county will receive in 2005 is the greater of the 2005 fee-for-service (FFS) county rate or the 2004 county rate increased by the 2005 minimum percentage increase of 6.6 percent.  The 6.6 percent represents the estimated increase in per capita Medicare costs for all beneficiaries for 2005.  About 80 percent of counties will receive the minimum rate increase of 6.6 percent, for their demographic rates for aged beneficiaries. The other 20 percent of counties will receive the local average per capita fee-for-service rate, which represents increases of greater than the 6.6 percent, in order to ensure that their rates remain on a level playing field with fee-for-service costs.  These rate increases are much greater than increases in years before enactment of the Medicare Modernization Act (MMA), when annual rate updates were less than the cost increases faced by most health plans.  The rate increases also promote greater access to coverage that frequently reduces overall medical costs.

“When you add all the costs together – including those paid by the Medicare and those paid by the plan enrollees and others – Medicare Advantage plans often do a better job of keeping total costs down,” said Mark McClellan, M.D., Ph.D., CMS administrator.   “Having integrated care plans available for beneficiaries who prefer them can help the whole health care system work more efficiently – reducing overall medical costs while providing more benefits.  This is a much better approach than just ‘controlling costs’ by shifting them to beneficiaries who are struggling to keep up.”   

CMS also announced that Medicare Advantage plans will receive payments that are more closely tied to the “risk” or expected cost of their enrollees than ever before.  As required by law, 50 percent of payments to Medicare Advantage plans in 2005 will be risk adjusted using the CMS-HCC model.  This model was introduced in 2004, when only 30 percent of plan payments were risk-adjusted.  In addition, for the first time, payments to Medicare Advantage plans will reflect a new risk adjustment methodology for enrollees with End Stage Renal Disease (ESRD), which pays more accurately for beneficiaries on dialysis and makes additional payments for enrollees receiving kidney transplants.  Together, these payment modifications substantially redirect payments to plans that care for the sickest beneficiaries – those patients who stand to gain the most from managed care's focus on coordinating care. Plans whose enrollees are sicker than average will receive relatively greater payments and plans with healthier enrollees will receive relatively less. 

Along with these substantial enhancements in risk adjustment, CMS found the difference in average risk scores between Medicare Advantage and fee-for-service enrollees is now 8 percent, lower than previously believed.   Previous studies suggested that these differences amounted to a 12 percent difference in average risk scores between beneficiaries in fee-for-service Medicare and those in Medicare health plans.  As a result, the so-called “budget neutrality” adjustment in health plan payments will be much smaller in 2005 compared to previous years – 3.5 percent in 2005 compared to 8.3 percent in 2004.

“We are pushing forward on much more risk adjustment and new quality improvement activities to make sure that Medicare Advantage plans, like all of the other health care options in Medicare, work well for all of our beneficiaries – particularly those with limited means and great medical needs,” said Dr. McClellan. “The new Medicare law gives us more opportunities than ever to help beneficiaries get more from Medicare and from our modern health care system, and getting more from improved Medicare Advantage plans are an important part of this effort.”

Currently, there are about 4.6 million Medicare beneficiaries enrolled in Medicare health plans.   Due to the additional funds for 2004 and later provided under the MMA, beneficiaries are seeing improved benefits offered by their health plans.  Premiums and cost sharing dropped, benefits were improved, and provider networks strengthened, further stabilizing health plans across the nation, helping to ensure that beneficiaries will continue to have choices in how they get their health care.  Medicare Advantage plans are also vitally important for lower-income seniors, minority seniors and disabled individuals who rely on them for their health care, to keep costs affordable, and for the valuable benefits that are not available in fee-for-service Medicare. 

In addition to the improvements in drug coverage and other benefits, more than 80 Medicare Advantage plans are offering Medicare-approved drug discount cards in an effort to provide additional savings to their enrollees. 

The rates can be found at: https://www.cms.gov/