Fact Sheets




The Centers for Medicare & Medicaid Services (CMS) today issued the “Advance Notice” of changes in methods that will be used to calculate Medicare Advantage (MA) capitation rates for payments to MA organizations for 2009.  The Notice also announces the policies for payments to organizations offering the Medicare prescription drug benefit.  The Notice – which is issued annually, 45 days before the final rates are announced – includes the preliminary growth trend that affects payment rates for Medicare Advantage plans, along with other technical updates on the calculations affecting payments to Medicare Advantage health plans and Part D prescription drug plan sponsors.

Technical adjustments announced in the Notice issued today include a preliminary estimate of a 4.8 percent increase in the National Per Capita MA Growth Percentage.  By law, CMS trends forward the previous year’s county capitation rates using the MA Growth Percentage.  The Growth Percentage is the estimated growth in per capita expenditures for all Medicare beneficiaries whether they are receiving their coverage through traditional fee-for-service (FFS) Medicare or in Medicare Advantage plans.  (If the MA Growth Percentage ever falls below a two percent increase, then the previous year’s rates must be trended forward by a minimum of two percentage points.)  The capitation rates trended forward from the previous year are known as the minimum percentage increase rates.

The law also requires that, at least every three years, CMS recalculate, or “rebase,” each county’s average per capita expenditures for original Medicare services, using the most recent fee-for-service spending data.  In years when CMS rebases the FFS rates with the most recent data, the final MA county capitation rate is the greater of a county’s FFS rate and its minimum percentage increase rate. CMS announces in the Advance Notice that for 2009 the FFS rates will be rebased with more recent data.  The final capitation rates for each county will be announced in a Rate Announcement scheduled for publication on April 7, 2008.  The county capitation rates define the upper limit for payments to MA health plans.

The Notice describes changes in the risk adjustment of payments, a method under which CMS raises or lowers payments to individual health plans based on the relative health care needs of their enrollees.  For 2009, the risk adjustment model for aged and disabled beneficiaries will be updated with more recent data to reflect newer treatment and coding patterns.

In the Notice, CMS proposes a downward adjustment to risk scores based on a requirement in the Deficit Reduction Act of 2005 that CMS adjust Part C risk scores to the extent that the Secretary of Health and Human Services has identified Missing media item.Missing media item.differences in coding patterns between Medicare Advantage plans and providers under original fee-for-service Medicare.  The DRA provides for this adjustment for 2008, 2009, and 2010.

To determine whether there are coding pattern differences between Medicare Advantage and FFS, CMS has analyzed the growth in risk scores in MA and FFS.  CMS found that MA risk scores on average increased faster than risk scores for FFS beneficiaries. 

CMS analyses have shown that approximately half of the difference in risk score growth, however, is due to different enrollment patterns between FFS and MA.  For example, a significant portion of beneficiaries who join FFS are younger beneficiaries who are new to Medicare, while most of the beneficiaries who join MA are older and are switching from FFS.  In order to focus on coding patterns, CMS’ proposed adjustment is based on the differential growth in that portion of the risk score that is affected by reported diagnoses (“disease score”), and on the effect of this growth on the risk scores of those enrollees who remain enrolled in a single contract from year to year.

CMS analyses found a significant amount of variation in disease score growth across contracts. CMS is proposing to apply a uniform adjustment to the risk scores of all enrollees in those contracts that experienced the greatest growth in disease scores, relative to FFS.  Specifically, CMS is proposing to apply an adjustment to those contracts where the difference between the disease score growth and the FFS disease score growth is twice the industry average.  CMS also proposes to not apply an adjustment to contracts that are relatively new and that have fewer than 1,000 enrollees.  CMS asks for comment in the Advance Notice on both the subset of plans to which to apply the adjustment and the calculation of the adjustment.

Based on data from 2004-2006, CMS estimates an absolute adjustment to risk scores of 0.0375.  In addition to making additional refinements to the adjustment, such as calculating the effective percent change to risk scores, CMS will add an additional year of data (2007) to the calculation of the adjustment.  The final adjustment will be released in the April 7 Rate Announcement.  The list of affected contracts will be finalized based on the additional data prior to the Announcement.

The Advance Notice also announces the annual updates to the 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 outlined in the Notice 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


CMS also proposes not to extend for 2009 the “Medicare Demonstration to Limit Annual Changes in Part D Premiums Due to Beneficiary Choice of Low-Cost Plans.”  Thus, for contract year 2009, 100 percent of the national average monthly bid amount would be based on a weighted average based on prior enrollment.

CMS does propose to extend the “Medicare Demonstration to Transition Enrollment of Low Income Subsidy Beneficiaries” for contract year 2009 in order to continue the transition to the statutory benchmark calculation.  For 2009, CMS proposes to calculate the regional low-income benchmark premium amounts as a composite of two different calculations:  25 percent would be based on the simple average, which is based on assumptions due to absence of data, and 75 percent would be based on the enrollment-weighted average, or actual Part D enrollment data. 

CMS does not propose to extend the “de minimis” component of the “Medicare Demonstration to Transition Enrollment of Low Income Subsidy Beneficiaries.”  CMS has proposed to replace this portion of the demonstration with the option for certain prescription drug plans to lower their premiums for low-income subsidy beneficiaries as described in the Notice of Proposed Rulemaking, Option for Prescription Drug Plans to Lower their Premiums for Low-Income Subsidy Beneficiaries, published in the Federal Register on January 8, 2008.

The Advance Notice can be found on the CMS Web site at

Comments on the Advance Notice are invited and must be submitted by 6 p.m. EST on March 7, 2008.  Comments may be submitted by e-mail to

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