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Calendar Year 2024 Rate Announcement

Updated: Apr 3

On March 31, 2023, the Centers for Medicare & Medicaid Services (CMS) issued its Announcement of Calendar Year (CY) 2024 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies, otherwise known as the Rate Announcement. The Rate Announcement is released on an annual basis and includes updates to the capitation and risk adjustment methodologies used to calculate payments to MA plans, as well as other payment policies that impact Part D.

On the payment side of the announcement, CMS anticipates a payment increase for MA plans of 3.32% (as compared to the 1.03% estimated increase in the Advance Notice) from 2023 to 2024, which is approximately a $13.8 billion increase in MA payments for next year. Among other payment provisions, the effective growth rate for 2024 MA non-End-Stage Renal Disease (ESRD) rates is 2.28% (2.09% more than the Advance Notice). The net impact on the Medicare Trust Funds for CY 2024 is expected to be $8.1 billion. On the payment side of CMS’ new 2024 risk adjustment, the agency projects the payment impact of the 2024 model with the phase-in through 2026 to be -2.16%, yielding approximately $7.6 billion in savings to the Medicare Trust Fund in 2024. Notably, this is less than the $11 billion in savings originally provided by CMS in the Advance Notice (without the phase-in).

From a policy perspective, CMS highlighted some of the current administration's goals for the Medicare Advantage and Part D programs including curbing abusive or misleading marketing, advancing health equity, driving comprehensive and person-centered care, and promoting the affordability and the sustainability of the Medicare program. CMS also finalized proposed changes to the Hierarchical Condition Category (HCC) risk adjustment model but is phasing these changes in through to 2026. For 2024, CMS will blend 67% of the risk scores as calculated under the current 2020 model (v24) and 33% of the risk scores as calculated under the updated 2024 (v28) model. For 2025, the blend will shift to 33% of the 2020 model and 67% of the 2024 model. And for 2026, 100% of risk scores will be calculated with the newest 2024 model. CMS projects that the risk score trend will be higher than initially projected due to the decision to blend risk scores using both the 2020 and 2024 risk adjustment models, with an impact of 1.14%, as compared to the projected risk score increases had the new model been implemented immediately. Additional changes applicable to the 2024 model include the transition to the Internal Classification of Diseases (ICD)-10 system, which is the coding classification system used throughout the U.S health care system since 2015, and revisions focused on discretionary diagnostic categories that are subject to more coding variation or inappropriate coding by health plans/providers, or that are not clinically credible for cost. Under the revised model, CMS will constrain the values of these HCCs which includes all diabetes HCCs and all congestive heart failure HCCs. The revised model will also increase the total number of ‘payment HCCs’ from 86 to 115, while decreasing the number of risk adjustable diagnoses from 9,797 to 7,720.

Several policy adjustments were also made regarding the Inflation Reduction Act including the elimination of cost sharing for covered Part D drugs for beneficiaries in the catastrophic phase and increasing the income limit for the full low-income subsidy benefit from 135% to 150% of the federal poverty level (FPL). Individuals within those parameters and who meet certain resource requirements will now be eligible for the full low-income premium and cost-sharing subsidies, as well as a $0 deductible. These and other IRA provisions that take effect in 2025 or later will be addressed in future CMS rulemaking notices and announcements.

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