Fact Sheet: 2024 Medicare Advantage and Part D Rate Announcement

Today, the Centers for Medicare & Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2024 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the Rate Announcement). CMS’ goals for Medicare Advantage and Part D mirror our vision for the agency’s programs as a whole: to advance health equity; drive comprehensive, person-centered care; and promote affordability and the sustainability of the Medicare program.

In the CY 2024 MA and Part D Advance Notice, CMS proposed updates to payment factors for CY 2024 and received a wide variety of comments on our proposals. CMS appreciates the submitted comments and considered applicable comments as we finalized the policies contained in the 2024 Rate Announcement.

This fact sheet discusses the provisions of the Rate Announcement, which can be viewed by going to: https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents.html and selecting “2024 Announcement.”

Net Payment Impact

The chart below indicates the expected impact of the policy changes and updates on MA plan payments relative to 2023. 

Year-to-Year Percentage Change in Payment

 [1] Rebasing/re-pricing impact is dependent on finalization of the average geographic adjustment index, which was not available with the publication of the CY 2024 Advance Notice. 

² The 2023 Star Ratings used for 2024 Quality Bonus Payments (that were made public in October 2022) are, on average lower than the 2022 Star Ratings; while the circumstances for particular contracts differ, an overall decrease in the Star Ratings is to be expected because the adjustments for extreme and uncontrollable circumstances due to the COVID-19 PHE are not included in the 2023 Star Ratings for most measures and there were additional methodological changes from the prior year.

³ Unlike in previous years, the impact of the update to the normalization factor is not shown in the fact sheet separately because there is considerable interaction between the impact of the MA risk adjustment model updates and the normalization factor update. Therefore, the combined impact is shown in the fact sheet. 

⁴ The MA risk score trend is the average increase in MA risk scores, not accounting for normalization and coding pattern adjustments to MA risk scores, which are shown on separate rows. The trend is calculated by using MA risk scores over the most recently available three years, calculated using the risk adjustment model to be used in the upcoming payment year. The trend is an industry average and individual plans’ experience will vary.

Growth Rates

The Effective Growth Rate reflects the current estimate of the growth in benchmarks used to determine payment for MA plans. This growth rate is largely driven by the growth in Medicare Fee-For-Service (FFS) per capita costs, as estimated by the Office of the Actuary. Included in the 2024 growth rate estimate is a technical adjustment to the per capita cost calculations related to indirect and direct medical education costs associated with services furnished to MA enrollees. This technical adjustment will be phased in over three years, and we will apply 33% of the adjustment in CY 2024.

Part C Risk Adjustment Model Revision

CMS finalized the 2024 proposed Part C risk adjustment model. The revised model includes important technical updates, including restructured condition categories using the International Classification of Diseases (ICD)-10 classification system (instead of the ICD-9 classification system) and updated underlying FFS data years (from 2014 diagnoses and 2015 expenditures to 2018 diagnoses and 2019 expenditures), as well as revisions focused on conditions that are subject to more coding variation. The Rate Announcement contains detailed descriptions of these updates. The model will be phased in over three years, and we will blend the CY 2024 risk scores using 67% of the risk scores under the current 2020 risk adjustment model and 33% of the risk scores under the finalized 2024 risk adjustment model.

MA Risk Score Trend

The MA risk score trend provided in the bottom line table above reflects the phase-in of the finalized 2024 risk adjustment model. We calculate the MA risk score trend for each model separately. The trend is calculated by using data on MA risk scores over the most recently available three years, calculated using the risk adjustment model to be used in the upcoming payment year. The risk score trend is 3.30% under the 2024 risk adjustment model and 5.00% under the current risk adjustment model. Since we will blend CY 2024 risk scores using 67% of the risk scores under the current risk adjustment model and 33% of the risk scores under the finalized 2024 risk adjustment model, the bottom line table reflects the blend of the MA risk score trends under the two models, yielding a 4.44% overall trend.

Inflation Reduction Act of 2022 (IRA) Updates for 2024

The IRA made several improvements to the standard Part D drug benefit defined in the Social Security Act. Part D benefit-related IRA updates that will be in place for CY 2024 include the following:

• Beginning in CY 2024, cost-sharing for Part D drugs will be eliminated for beneficiaries in the catastrophic phase of coverage.
• Beginning in CY 2024, the Low-Income Subsidy program (LIS) under Part D will be expanded so that beneficiaries who earn between 135 and 150 percent of the federal poverty level and meet statutory resource limit requirements will receive the full LIS subsidies that, prior to 2024, were available only to beneficiaries earning less than 135 percent of the federal poverty level; these subsidies provide for $0 premiums and low-cost, fixed copayments for covered prescription drugs.
• During CY 2024, Part D plans must not apply the deductible to any Part D covered insulin product and must charge no more than $35 per month’s supply of a covered insulin product in the initial coverage phase and the coverage gap phase.
• During CY 2024, Part D plans must not apply the deductible to an adult vaccine recommended by the Advisory Committee on Immunization Practices and must charge no cost-sharing at any point in the benefit for such vaccines.
• Beginning in CY 2024, the annual growth in the Base Beneficiary Premium will be capped at 6 percent. The Base Beneficiary Premium for Part D is limited to the lesser of a 6 percent annual increase, or the amount that would otherwise apply under the prior methodology had the IRA not been enacted.

Please note that IRA provisions that apply for 2025 and beyond will be addressed in future Advance Notices and Rate Announcements.

Puerto Rico
The proportion of Medicare beneficiaries who receive benefits through MA (as opposed to Medicare FFS) is far greater in Puerto Rico than in any other state or territory. The policies proposed and finalized for 2024 will continue to provide stability for the MA program in Puerto Rico and for Puerto Ricans enrolled in MA plans. These policies include basing the MA county rates in Puerto Rico on the relatively higher costs of beneficiaries in FFS who have both Medicare Parts A and B, and applying an adjustment to reflect the higher percentage of beneficiaries in Puerto Rico with zero claims.

Part C and D Star Ratings

In the Advance Notice, CMS provided information and updates in accordance with the Star Ratings regulations at §§ 422.164, 422.166, 423.184, and 423.186 of title 42 of the Code of Federal Regulations.

Star Ratings updates finalized for CY 2024 include providing the list of eligible disasters for the extreme and uncontrollable circumstances adjustment, non-substantive updates to several measure specifications, and the list of measures included in Part C and D Improvement Measures and Categorical Adjustment Index for the 2024 Star Ratings to be issued later this year.

Frequently Asked Questions

1. What drives the Growth Rates? As required by statute, the growth rates used in the calculation of the MA rates are based on the expected change in United States Per Capita Costs in Fee-For-Service (FFS USPCC) and in Medicare overall (both FFS and MA) and as such are driven by trends in per capita costs for enrollees in Medicare FFS. The MA Ratebook, released with the Rate Announcement, includes updates to the rates for each county, which plans then use for development of bids. The Effective Growth Rate in the Fact Sheet is a national average of expected change in the growth rates year over year. The main driver of the Effective Growth Rate is the FFS USPCC, with the Total USPCC used to calculate the Pre-ACA benchmark cap amount for each county. 

2. Why did the Effective Growth Rate change from the Advance Notice to the Rate Announcement? The Effective Growth Rate changed for two reasons: CMS is phasing in over 3 years the technical update to the growth rates to remove indirect medical education and direct graduate medical education costs from the FFS USPCC used for MA payment and has also updated the underlying data used to calculate the USPCCs. In terms of medical education costs, in the Rate Announcement, the Effective Growth Rate is 2.28%, which is based on a lower gross Effective Growth Rate of 3.06% that is reduced by 0.78% for 33% implementation of the medical education costs technical update for CY 2024.

In regards to the change in growth rates, each year in the Rate Announcement, CMS updates the growth rates to be based on the most current estimate of per capita costs. The growth percentages are based on CMS’ best estimate of historical program experience and projected trend using the most up-to-date data available. We continue to consider it best practice to base the growth rates on the most recent data and assumptions available at the time those values are announced. Therefore, for each release of the growth rates, CMS updates historical enrollment and claims, as well as projection factors, based on the most recent data. The USPCC projections reflect payment levels based on the most recent Medicare final regulations for fiscal year 2023 or calendar year 2023. The 2024 growth rates are lower than in recent years primarily due to actual experience for 2022 being lower than projected in the 2023 Rate Announcement. The 2024 growth rates also reflect updated modeling to account for the effects of COVID-19 and other programmatic and demographic changes, lower morbidity from excess COVID-related deaths, lower total spending by explicitly modeling the shift of hip and knee replacements from inpatient to outpatient settings, and updated modeling of the effect of a greater share of dually-eligible beneficiaries enrolling in MA.

3. Has CMS phased-in updates to the risk adjustment model before? Yes, CMS has phased in risk adjustment model updates in the past. For example, CMS phased in the 2014 model, which included clinical reclassifications like the 2024 model, the transition from the Risk Adjustment Processing System (RAPS) to encounter data, and, per statute, the changes mandated in the 21st Century Cures Act. 

4. Why is the information in the bottom line table different than the information in the Economic Information section toward the end of the Rate Announcement? What does the bottom line equate to in terms of dollars? The Economic Information section in the Rate Announcement, like that in the Advance Notice, estimates the impact of the updates and policy changes on the Trust Funds. This section includes only significant provisions, such as the impact of the growth rates and the finalized risk adjustment model. The bottom line table in the Fact Sheet is intended to show the expected average impact of updates and policy changes on plan revenue year over year. The bottom line table also includes the impacts on revenue of other variables that impact MA revenue, including variables not in the Economic Information section, such as the impact of Star Ratings and the impact of the MA risk score trend on plan payment. The 3.32% increase in the bottom line table equates to an expected increase in payment to MA plans of roughly $13.8 billion in 2024 compared to 2023.

5. Is the change in Star Ratings impacts in the bottom line table reflective of policies in the 2024 Rate Announcement and/or proposals in the 2024 Part C & Part D Proposed Rule? No, the Star Ratings impacts listed in the bottom line table in the Advance Notice and Rate Announcement Fact Sheets are based on payment impacts due to 2023 Star Ratings (that were made public in October 2022), which are used for 2024 Quality Bonus Payments. The 2023 Stars are, on average, lower than the 2022 Star Ratings and that is reflected in the -1.24% impact; while the circumstances for particular plans differ, an overall decrease in the Star Ratings is to be expected because the adjustments for extreme and uncontrollable circumstances due to the COVID-19 PHE, finalized in previous rulemaking, are not included in the 2023 Star Ratings for most measures and there were additional methodological changes from the prior year. Proposals in the 2024 Part C and Part D proposed rule do not impact 2023 Star Ratings/2024 Quality Bonus Payments. 

6. Why is the MA risk score trend important to include? How does CMS calculate it? Why did it go up from the Advance Notice to Rate Announcement? The MA risk score is a key factor in the level of overall MA payments. The MA risk score trend accounts for the average annual increase in MA risk scores and is driven by MA diagnosis coding patterns. It represents the projection, based on historical data, for how risk scores will increase for the next year, which results in higher payments to plans. Historically, the risk score trend has steadily increased over time, even in years when CMS implemented updated risk adjustment models. These trends are calculated using historical diagnosis data run through the model being proposed or finalized, thus each model has a unique MA risk score trend. The MA risk score trend is a national average and specific plan experience as well as regional variation exists. Since CMS is finalizing a phase in of the 2024 model, the 4.44% estimated MA risk score trend included in the 2024 Rate Announcement Fact Sheet is calculated using a blend of 67% of the MA risk score trend calculated with the current model (the 2020 model, 5.0% risk score trend) and 33% of the risk score trend calculated with the updated model (the 2024 model, 3.3% risk score trend). 

7. Is the new risk adjustment model more accurate? Did CMS analyze its accuracy for subsegments? The new model is more accurate than the 2020 model because it reflects more recent diagnoses and costs (2018 diagnoses/2019 costs compared to 2014 diagnoses/2015 costs) and includes clinically meaningful conditions that predict costs developed from experience with ICD-10 and with clinician input. Based on multiple different accuracy analyses, the new model performs better than the old model. The most appropriate way to assess model performance is to examine predictive ratios, which measure accuracy across subgroups of beneficiaries; predictive ratios show that the new model is more accurate. Though the R2 value – which measures how well the model predicts costs at the individual level – is not the most appropriate measure of performance for the risk adjustment model, nevertheless, the 2024 model has an improved R2 compared to the current 2020 model. Additionally, the new model has better predictive accuracy for all demographic segments, including Full-Benefit dually-eligible individuals.

8. How does CMS ensure payment for individuals dually eligible for Medicare and Medicaid is adequate in the new model? Payment accuracy ensures MA plan payments better reflect the expected costs of care, with higher payments going to plans serving people with greater health care needs, including individuals dually-eligible for Medicare and Medicare. With respect to dually-eligible beneficiaries, in addition to the analyses for predictive accuracy described above that indicate that the new model better predicts the costs for the dual-eligible subsegments, the model also predicts well for individuals with the highest level of risk.  Further, CMS also has not changed any of the improvements built into the MA risk adjustment system to ensure adequate payment specifically for dually-eligible individuals. In 2017, CMS implemented a updated model that calculates unique adjustments for every health condition based on dual-eligibility status. This means CMS will continue to make higher MA payments for an enrollee who is dually-eligible compared to someone who is not, even when they have the same health conditions. Furthermore, nothing in this payment update changes the requirement for MA plans to cover all Medicare-required benefits, such as Part A (hospital) and Part B (outpatient) services, or the cost sharing protections that fully dual eligible beneficiaries have under Medicaid that protect them from potential cost sharing changes. 

9. Can CMS provide more detail on the removal of 2,000 codes from the model? To be clear, CMS will still be making higher payments to MA plans for beneficiaries who are sicker and have more complex conditions that we expect to be more costly, including those with diabetes and depression. 

In the MA payment system, all diagnosis codes are mapped to categories of diagnoses (called HCCs, Hierarchical Condition Categories) that are clinically related and have similar ability to predict Medicare costs. The existing HCCs (used in the current 2020 model) are built using ICD-9 codes. However, ever since the health system transitioned to ICD-10 in 2015, the codes coming in from plans to CMS for MA payment have been ICD-10 codes. Thus, what CMS had to do is map ICD-10 codes to ICD-9 condition categories (HCCs) while it waited for ICD-10 coding practices to stabilize. 

For 2024, CMS undertook a CMS-HCC reclassification that involved newly building condition categories from the ground up, reviewing each diagnosis and determining the best grouping of diagnoses to be clinically sound and their ability to predict Medicare costs, with iterative input from our clinical expert panel over multiple years. The goal of updating the underlying data and the clinical reclassification was to improve predictive ability by better reflecting current disease patterns, treatment methods and costs, and diagnosis and coding practices. 

Many of the resulting new HCCs differ from the existing HCCs, with a number of diagnosis codes being mapped to different HCCs.  We also freshly assessed which HCCs are included in the payment model. Over 95 percent of the 2,000 codes that no longer map to HCCs included in the model are being moved as part of updating the model to use the ICD-10 system. All roughly 74,000 ICD-10 diagnoses are mapped to an HCC, and then we determined which HCCs are included in the payment model, following well-established principles to determine which HCCs best predict Medicare FFS costs. In the finalized 2024 model, there are 115 HCCs in the payment model and 151 HCCs that are not in the payment model. Note that this is typical that most HCCs are not in the payment model. The current (2020 model) HCC model includes 9,797 ICD-10 codes for payment, or 13% of ICD-10 codes. The finalized HCC model includes 7,770 ICD-10 codes, or 10.5% of ICD-10 codes. As part of this process, ICD-10 has a much larger code set, which provides more specificity, and for certain clinical categories (e.g., depression) the clinical concept used to classify these conditions is very different, so the HCCs for these conditions have changed more than for some other conditions. Because the mental health diagnosis codes are very different in ICD-10, our analysis resulted in the remapping of certain depression codes that aren’t the best predictors of costs to non-payment HCCs, while keeping in the majority (the remaining 350) of these codes in the payment model. Another example is diabetes – as part of updating the risk adjustment model certain diabetes codes were removed because they are not reliable predictors of cost.  However, over 300 diabetes codes remain in the risk adjustment model. 

The transition from ICD-9 to ICD-10 accounted for roughly 97% of the codes removed from payment, the remaining codes were due to the ‘Principle 10’ changes related to discretionary coding. We removed certain codes where there is wider variation in diagnosing and coding. This may occur because clinical indicators are broad, or need significant interpretation, or because the condition is being diagnosed and documented in the situations where it has no clinical significance, or where it does not require or affect patient care, treatment or management as required by the ICD-10 Coding Guidelines. These diagnoses don’t predict costs as well as a result of the variation in their coding.  Ultimately, these steps are about paying more for the sickest patients and spreading relative weights for HCCs, and therefore payments, to plans accurately.

The table below from the Rate Announcement provides additional information on the underlying diagnosis code counts for the current 2020 CMS-HCC model and the 2024 CMS-HCC model. 
 

* The total number of ICD-10 diagnosis codes varies by fiscal year.

10. How will the proposed changes impact beneficiaries’ premiums and benefits in 2024? Payment to MA plans is projected to be 3.32% higher, on average, in 2024 than 2023 based on the final 2024 Rate Announcement. CMS anticipates stable premiums and generous supplemental benefits for beneficiaries in 2024, as seen in previous years. For example, in 2015, MA plans were projected to receive a payment increase of 0.4% compared to 2014. Following those payment updates, the MA market remained stable. Historical experience shows plans compete in this highly competitive market to keep premiums down and maintain supplemental benefit levels, with beneficiary choice remaining strong.

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