MEDICARE ADVANTAGE PLANS PROVIDE LOWER COSTS AND SUBSTANTIAL SAVINGS
CMS ANNOUNCES INCREASED PAYMENT RATES FOR MEDICARE ADVANTAGE PLANS IN 2007
Primarily because of better health care coordination, Medicare Advantage plans across the country are lowering overall costs and providing substantial savings for beneficiaries. The benefits from the plans include the use of proven approaches to keep beneficiaries healthy and avoid complications from chronic diseases.
Enrollment information from the new prescription drug benefit shows that these extra savings extend to prescription drug coverage:
“Medicare Advantage plans are providing enhanced drug coverage at a low cost, as well as other enhanced benefits, contributing to average savings of about $100 a month for seniors,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “With better benefits more widely available than ever before, a million more people with Medicare have already chosen to get their coverage through Medicare Advantage.”
Nearly 7 million beneficiaries are currently enrolled in Medicare Advantage plans, including both Medicare Advantage-only plans and Medicare Advantage-Prescription Drug plans that include Medicare prescription drug benefits. Enrollment in Medicare Advantage has increased by about 1 million since enrollment in the drug benefit began. About 5.7 million beneficiaries in Medicare Advantage receive Medicare prescription coverage through Medicare Advantage-Prescription Drug plans.
The Centers for Medicare & Medicaid Services (CMS) today announced an average Medicare Advantage rate increase of approximately 4 percent for 2007. The average rate increase is the result of several factors used to determine annual increases in Medicare Advantage payment rates, including the current year growth in Medicare costs for all Medicare beneficiaries of 3.6 percent (mainly due to growth in costs for beneficiaries in fee-for-service Medicare) and the phaseout of the “budget neutrality” adjustment in Medicare Advantage payments. These factors are described in more detail in the accompanying Fact Sheet.
Assuming that a given plan’s risk score in 2007 is approximately the same as in 2006, we expect the plan’s payments will increase, on average, by approximately 1.1 percent after the adjustment for fee-for-service normalization.
“Medicare Advantage plans are providing better benefits for people with Medicare, and will do so in 2007 with payment increases that are less than expenditure growth in fee-for-service Medicare,” added Dr. McClellan. “We are also completing the implementation of ‘risk adjustment’ in our payments to Medicare Advantage plans, which means that plans receiving more payments are those that attract and retain beneficiaries with chronic diseases and high expected costs. These seniors often have the most to gain from the better drug coverage, care management services, and additional benefits in Medicare Advantage plans.”
The final estimate of 7.1 percent for 2007 for the National Per Capita Medicare Advantage Growth Percentage for aged and disabled beneficiaries combined was calculated by compounding the 2007 trend change of 3.6 percent for Medicare spending and 3.4 percent for prior year’s adjustments when spending increased more than previously estimated. The Medicare trend increase and the related revisions for earlier underestimates or overestimates of the growth trend are actuarial calculations based on actual Medicare spending and are required by the Medicare law.
The 2007 rates are used to develop benchmarks for both local and regional Medicare Advantage plans. These benchmarks, in combination with bids from Medicare Advantage plans, determine payments to plans.
By law, on the first Monday in April each year (this year April 3), CMS is required to announce the capitation rates for Medicare Advantage plans for the following calendar year.
In 2007, 100 percent of payments to Medicare Advantage plans will be based on CMS’ risk adjustment models, which marks the completion of a seven-year transition from the prior demographic-based payment system to the risk adjustment payment system. Risk adjustment ensures that plans are paid higher amounts for sicker beneficiaries. Also for 2007, the risk adjustment system is being updated with more recent data to reflect newer treatment and coding patterns, including community, long-term institutional and new enrollee models.
The announcement of the 2007 Medicare Advantage payment rates and a companion Fact Sheet are available at http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/ under Ratebooks and Supporting Data.