CMS predicts managed medicare growth

Sunday, March 28, 2004

March 29, 2004

BALTIMORE - CMS last week announced that Medicare Advantage (formerly Medicare+Choice) capitation rates in 2005 are expected to increase 6.6 percent in accordance with new rate formulas outlined in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). The announcement also included CMS's preliminary estimates of the national growth rate used for determining the national per capita Medicare Advantage growth percentage.
"Health plans are already using the increases from the new Medicare law to expand benefits and reduce premiums for their beneficiaries," said CMS Administrator Mark B. McClellan, Ph.D., M.D.  "We expect that more health plans will use the 2005 increase to further expand services and improve benefits."
Since the MMA was enacted in December 2003, CMS has approved six new Medicare Advantage organizations and 14 service area expansions. Currently there are 10 new plans and 10 service area expansions pending CMS approval.
In 2005, Medicare Advantage plans will see increases in their reimbursement, since all capitation rates will be the greater of the 2005 fee-for-service (FFS) county rate or the 2004 county rate increased by the 2005 minimum percentage increase . (Beginning with the 2004 revised rates, the minimum percentage increase that CMS applies to the prior year's rate is the greater of 2 percent or the national per capita Medicare Advantage growth percentage.) For 2005, the minimum percentage increase is the national Medicare Advantage growth percentage, and the preliminary estimate announced today is 6.6 percent for aged demographic rates.  This estimate could change before the final 2005 capitation rates for all counties are announced on May 10, as required by law.
In the notice on the CMS website at, CMS also is announcing that it will continue to phase in the CMS-HCC (Hierarchical Condition Category) risk adjustment methodology, initiated for payment purposes in 2004. The CMS-HCC model was designed to increase payments to plans that care for the sickest beneficiaries — those patients who stand to gain the most from the methods for coordinating care used by many Medicare Advantage managed care plans - by including health status as an adjustment factor. The Advance Notice for 2004, available on, explains the CMS-HCC risk adjustment model in some detail.
The Medicare law mandates an 8-year phase-in of a risk adjustment payment method that includes adjustments for the health status of enrollees; the phase-in began in 2000.  In 2005, 50 percent of a plan's payment for each Medicare Advantage enrollee will use the new CMS-HCC risk adjuster, while 50 percent of the payment for each enrollee will be based on the previous demographic only system. In 2004, 30 percent of a plan's payment is based on the CMS-HCC risk adjuster. In 2006, 75 percent of the payment will be based on the CMS-HCC model, and the phase-in will be completed in 2007.
Last week’s notice indicates that CMS has decided to rebase the fee-for-service county rates for 2005, which is an option provided for in the new Medicare law.  The MMA requires CMS to rebase at least every three years.  CMS is rebasing for 2005 because more data is available now to provide better estimates of the county fee-for-service costs. Other elements of the notice issued today include a description of the CMS-HCC risk adjustment methodology to be used for paying for Medicare Advantage enrollees with End-Stage Renal Disease (ESRD) beginning in 2005 and the phase-in schedule for CMS-HCC risk-adjusted payments for certain demonstration projects and other specialty plans, such as the PACE program.