CMS finalizes 8.5% pay bump for Medicare Advantage plans

Medicare Advantage plans will see an expected 8.5% average increase in revenue in 2023, the Centers for Medicare and Medicaid Services announced Monday in its final rate notice for plans.

The pay increase is more than 0.5% higher than what CMS originally proposed in January, and follows a historical trend of increased effective growth rates in the time between the advance notice to the final document.

The the rate bump accounts for additional plan expenses such as COVID-19-related costs and changes in utilization. Policy experts previously said the high-inflation environment likely also contributed to the increase.

The increase is primarily due to a finalized 4.88% effective growth rate, slightly higher than the predicted 4.75% growth rate in the advance notice. That’s the highest growth rate since 2009, according to Premier.

The agency’s final notice also includes a 3.5% risk score trend that hasn’t been part of recent years’ rate calculations. CMS didn’t include the trend in 2022’s notice given the uncertainty around COVID-19, an official said on a stakeholder call in February. The official didn’t elaborate on why it wasn’t included in previous years’ average revenue change calculations.

CMS also finalized a coding pattern adjustment of 5.9%, which is the lowest adjustment required by law. The adjustment reflects coding differences between Medicare Advantage carriers and fee-for-service Medicare providers and has not been changed since 2018. The Medicare Payment Advisory Commission and others have urged CMS to boost the adjustment in order to level out coding differences. CMS risk-adjusts payments to plans so they’re encouraged to develop systems to cover sicker patients, but more aggressive coding can lead to higher payments.

Insurance lobbyists and plans applauded CMS’ proposal to leave the adjustment at 5.9% in comments on the proposed policy.

CMS wrote in the final notice that continuing its longstanding approach is suitable for 2023, but that it would take into account comments suggesting a higher adjustment when it promulgates rules in later years.

“Ensuring that the coding pattern adjustment policy appropriately addresses differential coding in MA is essential and we will consider these recommendations in the development of future coding pattern adjustment proposals,” the notice says.