New Medicare Advantage Rates and Risk Adjustment Changes Announced

April 14, 2023


On March 31, CMS finalized the 2024 Medicare Advantage (MA) capitation rates and payment policies. These changes will impact Medicare plans’ reimbursement from CMS, capitation payments to downstream providers, and risk adjustment operations and reporting. Now that the 2024 operating environment is clearer, it is time to embrace these program updates, fully understand the implications, and finalize your action plans to be prepared for success amidst all the changes. It’s time to embrace these updates along with those in the 2024 Final Rule.

Below is a summary of the most notable risk adjustment aspects of the rate announcement.

Risk Adjustment Model Changes Phased in Over 3 Years

The biggest news is that the Centers for Medicare & Medicaid Services (CMS) finalized the risk adjustment model as proposed, but it will be phased in over three years. In 2024 risk scores will be calculated as 67% of the current model plus 33% of the finalized 2024 model. In 2025, risk scores are planned to be 33% of the current model plus 67% of the new model. And in 2026, risk scores will be fully transitioned to the new model. It seems the intense lobbying efforts resulted in a partial win for MA participants, providing additional time to learn and adapt to the new model.

More Payment HCCs, but Fewer Payment ICD-10 Codes

There are 115 payment hierarchical condition categories (HCC) in the new model. This is 29 more than in the current model, but approximately 2,000 fewer diagnosis codes that map to these payment HCCs. CMS attributes 97% of these changes to the remapping of diagnoses to HCCs that was required due to the transition to ICD-10 diagnosis codes. Only 3% of these changes are related to what CMS calls discretionary coding—situations where there is wide variation in diagnosing and coding, and therefore the codes do not predict costs well. Conditions that still risk adjust but are most impacted by the decrease in ICD-10 codes are major depression, vascular disease and inflammatory disease, whereas protein calorie malnutrition, angina pectoris and atherosclerosis of extremities no longer map to payment HCCs.

Some HCC Coefficients Constrained

The new model constrains some HCC coefficients to a single value across multiple payment HCCs. For example, all diabetes HCCs have the same coefficient. CMS explains they did this in situations where beneficiaries coded with the same HCC showed a range of clinical burdens and medical expenditures, and therefore the coding had limited clinical significance and implications on medical treatment.

Model Updated to More Current Years

The new risk adjustment model is developed using ICD-10 codes, which have been used in the healthcare community since 2015. For risk adjustment, CMS has been mapping ICD-10 codes to ICD-9 condition categories to determine HCCs while ICD-10 coding behaviors stabilized across the healthcare system. It was inevitable that CMS would eventually update the risk adjustment model to align with the rest of the healthcare community.

CMS also updated the underlying fee-for-service data years used in the model to 2018 diagnosis and 2019 expenditures (from 2014 diagnosis and 2015 expenditures). This is a routine model update from CMS that helps ensure the model is as current as reasonably possible.

Average Plan Payments are Increasing

Although the actual impact of payment policies will vary by plan, CMS estimates an average increase of 3.32%, considering the effective growth rate, change in Star Ratings policies, risk model revisions and normalization, and expected trends in risk scores. This is a significant improvement from the 1.01% estimated in the Advance Notice and will hopefully ease the benefit reductions that some plans were warning against.

What Plans Should Do Now

Remember that these updates are to a payment model, not updates to how members should be assessed and treated clinically. Care teams should continue to provide appropriate screenings and treatment to optimize health outcomes for members regardless of changes to the risk adjustment model.

The changes announced go beyond risk adjustment and include other program elements, such as comments from CMS foreshadowing changes to Star Ratings. Now more than ever it is important to have an integrated Stars, quality and risk adjustment operating model. It is most efficient and effective to have one health plan voice and tool set across programs. Care partners will have questions regarding program changes and will lean on health plans for education.

Create open communication channels between plans, providers and vendors. Share information and ideas amongst one another. Ensure your goals are aligned, and that support structures are in place to help each other succeed.

Finance leaders will need to understand the financial implications of these changes. Model your membership with the changes to understand the effect to your plan’s finances. This may impact, positively or negatively, the benefits and services your plan can offer.

The MA industry has not only survived, but flourished, when significant risk adjustment model changes have been made. Plans have experienced past years of lower growth in capitation rates, but membership and supplemental benefits have consistently increased. Membership in both dual and non-dual MA plans is healthy and growing, and the number of organizations offering MA plans has increased. It is an exciting time to be part of an industry reshaping healthcare in our country!

Healthmine’s consulting team has the experience and expertise to help you navigate these changes. Contact me at to assess your program and update your work plan to win in the MA market.

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