Fact sheet




The Centers for Medicare & Medicaid Services (CMS) today released the Announcement of Calendar Year (CY) 2009 Medicare Advantage (MA) Capitation Rates and MA and Part D Payment Policies.

Audit Initiative for Coding Intensity

CMS is announcing a new audit initiative to determine the accuracy of the diagnosis code information submitted to CMS by MA plans. CMS will audit the medical records from a sample of plans including those with high, medium, and low risk score differences.  As errors of coding are identified, CMS will reconcile payments to correct for these errors at the plan level. CMS intends to begin the reconciliation process by the end of calendar year 2008. The results of these audits will also help CMS to establish whether differences in risk scores between MA plans and fee-for-service (FFS) Medicare are attributable to differences in coding patterns, and therefore, to determine whether an adjustment to rates would be appropriate for 2010.


2009 Rate Increases

For MA plans, the aged and disabled capitation rates will increase on average about 3.6 percent. This increase is slightly lower than the estimated 3.7 percent Medicare growth trend for 2009. Individual counties may see different increases because CMS rebased the FFS rates and recalibrated the CMS-HCC risk adjustment model for 2009 (discussed below).


This fact sheet discusses the factors shaping expected payment rate increases under Part C (original Medicare benefits and related supplemental benefits offered by MA plans), followed by a discussion of Part D payment policies.




Method for Calculating MA Payment Rates

The average 3.6 percent increase in MA rates is a result of the following calculations CMS performs to determine the capitation rates for 2009. 


  • Step one --to determine a 2009 minimum percentage increase rate for each county, the 2008 Budget Neutrality (BN) factor of 1.0169 is backed out from the final 2008 rates. 
  • Step two -- the 2009 National Per Capita MA Growth Percentage (also known as the “minimum percentage increase”) (4.24 percent) is applied to the 2008 rates.
  • Step three -- the 2009 BN factor (1.009) is applied to the result of Step two.


National Per Capita MA Growth Percentage for 2009

The final estimate of the 2009 growth percentage is 4.24 percent for aged and disabled beneficiaries, which includes 3.74 percent for the 2009 underlying trend change and approximately 0.5 percent due to corrections to prior years’ estimates, as required by law. The MA Growth Percentage is used to determine the minimum percentage increase rate. 


FFS Rates were Rebased

Rebasing the FFS rates means that CMS retabulates the per capita FFS expenditures for each county so that the FFS rates reflect more recent county growth trends in FFS expenditures. If a county’s 2009 FFS rate is greater than its 2009 minimum percentage increase rate, then the final 2009 capitation rate for that county is the FFS rate.


Determination of County Rates

Because CMS rebased the FFS rates for 2009, we then compare the county’s minimum percentage increase rate (see above) with its FFS rate to determine which is larger.


Budget Neutrality Factor

Each final county rate is adjusted by a BN factor of 1.009 for 2009. This factor is calculated as the estimated difference for 2009 between payments to MA organizations at 100 percent of the demographic rates and payments at 100 percent of the risk rates, expressed as a percent of risk-adjusted payments. As required by the Deficit Reduction Act of 2005, 2009 is the third of four phase-out years; 25 percent of the total budget neutrality factor of 1.038 is applied to the risk rates.


Normalization Factor

In addition to the factors above, which determine the annual capitation rates, CMS must apply an additional adjustment when calculating the payment amount for each beneficiary in a particular plan. A “normalization factor” is applied as a downward adjustment to beneficiary risk scores when calculating CMS’ monthly payment to plans. Because average predicted FFS expenditures increase after the model calibration year, CMS applies a normalization factor to adjust beneficiaries’ risk scores so that the average risk score is 1.0 in any particular year.  The 2009 normalization factor for the CMS-HCC model is 1.030, and for the ESRD CMS-HCC dialysis model it is 1.019.


Relative Risk Factors in the CMS-HCC Risk Adjustment Model were Recalibrated CMS used more recent FFS diagnosis and claims data to update the relative risk factors in the CMS-HCC model, which is used to produce risk scores for all Medicare beneficiaries.


Changes in Medicare Part D Payment for Calendar Year 2008


Calculation of the Low-Income Benchmark Premium Amounts

On April 3,2008, CMS issued a final regulation, “Modification to the Weighting Methodology Used to Calculate the Low-income Benchmark Amount,” changing the method used to determine the benchmarks for the low-income subsidy (LIS) (please cite the FR reference). Benchmarks are the maximum amounts of a plan’s premium that will be paid by the Federal government through the low-income subsidy.  Lower low-income subsidy benchmarks mean that there are fewer plans that offer low or zero-premiums for low-income subsidy beneficiaries.


Currently, beneficiaries enrolled in prescription drug plans no longer offering a zero-premium plan, and who have not made an affirmative choice to change plans, are reassigned by Medicare to a different prescription drug plan in their region that offers coverage with no premium. 


Under the final rule, the benchmarks will be weighted on each plan’s share of low-income enrollees receiving the low-income subsidy, rather than their share of total Part D enrollment.  This means plans with a greater number of low-income subsidy enrollees will be a larger factor when CMS calculates the benchmark.  This will help to ensure that the premium subsidy amount better reflects the plans in which low-income subsidy beneficiaries participate.


This change will likely increase many of the benchmarks compared to the prior regulation and could allow nearly one million Medicare beneficiaries with limited income and resources to remain in the Medicare prescription drug plan in which they are enrolled without having to pay a premium. 


In the Advance Notice, CMS proposed to extend the “Medicare Demonstration to Transition Enrollment of Low Income Subsidy Beneficiaries” for contract year 2009 in order to reduce the number of LIS reassignments.  Given the regulation change noted above, CMS will not extend the LIS transition demonstration to 2009. 


Annual Updates to Medicare Part D Benefit Parameters. 

Every year CMS is required to update the statutory parameters for the defined standard Part D prescription drug benefit. The annual percentage increase in average per capita Part D spending used to update the deductible, initial coverage limit, and out-of-pocket threshold for the defined standard benefit for 2009 is 7.54 percent. The annual percentage increase in the Consumer Price Index used to update the 2009 maximum copayments below the out-of-pocket threshold for certain dual eligible enrollees is 3.18 percent. The 2009 Part D benefit parameters are provided in the table below.




Part D Benefit Parameters 2008 2009
Defined Standard Benefit
Deductible $275 $295
Initial Coverage Limit $2,510 $2,700 
Out-of-Pocket Threshold $4,050 $4,350 

Minimum Cost-sharing for Generic/Preferred

Multi-Source Drugs in the Catastrophic Phase

$2.25 $2.40

Minimum Cost-sharing for Other Drugs in the

Catastrophic Phase

$5.60 $6.00
Retiree Drug Subsidy
Cost Threshold $275 $295
Cost Limit $5,600 $6,000



For more on the CY 2009 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies visit


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