Medicare Advantage rates holding steady

April 30, 2008

Medicare Advantage plans will see payment rates increase by 3.6% in 2009, slightly higher than last year’s rise of 3.5%, but not as much as the 3.7% boost previously predicted. This slight drop from earlier estimates is a result of lower-than-expected plan expenditures for 2007, according to analysis by the Centers for Medicare and Medicaid Services (CMS).

Medicare Advantage plans will see payment rates increase by 3.6% in 2009, slightly higher than last year’s rise of 3.5%, but not as much as the 3.7% boost previously predicted. This slight drop from earlier estimates is a result of lower-than-expected plan expenditures for 2007, according to analysis by the Centers for Medicare and Medicaid Services (CMS).

The 2009 rate serves primarily as a benchmark against which plans offer services. MA plans generally bid to provide Medicare benefits for less than the benchmark in order to obtain rebates that can support additional benefits or reduced premiums.

The payment level will affect leading MA plan sponsors such as UnitedHealth and Humana, which collectively provide coverage to more than 2 million Medicare patients. A larger issue is what kind of impact the new rate calculation will have on the debate over whether MA plan payments are too high. Democratic leaders in Congress and consumer advocates want to cut reimbursement to MA plans to offset increased Medicare payments to physicians and to support state Medicaid programs. However, White House opposition is expected to delay such action until next year.

Separately, CMS unveiled the basic coverage parameters for the defined standard drug benefit under Part D. Although few prescription drug plans (PDPs) or MA drug plans (MA-PDs) offer coverage that follows the standard benefit, the parameters set a framework for plans to build on. For 2009, the standard deductible will be $295, up from $275. Plans will cover drugs until expenditures for a beneficiary reach $2,700; the individual then fall into the “donut hole” until catastrophic coverage kicks in when beneficiary out-of-pocket outlays reach $6,154, up from $5,726 this year.