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Medicare insurers get less than one percent pay increase for 2017

Final Medicare Health and Drug Plan rates and policies released

chart showing a downward graphApril 5, 2016 - The final Medicare Advantage and Part D Prescription Drug Program changes for 2017 were released yesterday by the Centers for Medicare & Medicaid Services (CMS). The insurers are getting only a .85 percent pay increase – a disappointment after a 1.35 percent jump was proposed in February.

On average, the expected revenue change is 0.85 percent without accounting for the expected growth in coding acuity that has typically added another 2.2 percent.

CMS says this growth is consistent with last year’s update and reflects a similar pattern in Medicare fee-for-service. Plans that improve the quality of care they deliver to enrollees can receive higher updates to enhance the benefits they offer to enrollees.

The changes “seek to provide stable payments to plans, and make improvements to the program for plans that provide high quality care to the most vulnerable enrollees,” CMS said in a news release.

"We continue to strengthen Medicare Advantage and Medicare Part D, in particular for enrollees who need additional investments in their health, such as dually Medicare-Medicaid eligible individuals and those with complex socioeconomic needs," said Acting Administrator Andy Slavitt.

"With these policies, we will continue to see improvements in growth, affordability, benefits, and quality for millions of seniors and people living with disabilities."

The final policies are similar to those proposed in February but incorporate several changes in response to feedback received during the public comment period, the agency said in the announcement.

New policies will improve the accuracy of payments to Medicare Advantage plans that serve vulnerable populations, such as dually eligible or low income beneficiaries. Specifically, a revised methodology used to risk adjust payments to plans will more accurately reflect the cost of care for dually eligible beneficiaries.

CMS will also implement an interim adjustment to the Star Ratings to reflect the socioeconomic and disability status of a plan’s enrollees. Additionally, CMS’s finalized policies will provide much needed stability to the Medicare Advantage program in Puerto Rico.  

CMS is also finalizing policies that will further combat opioid overutilization by encouraging safeguards before an opioid prescription is dispensed at the pharmacy and maintaining access to needed medications.

Today’s announcement drives improvements to payment for Medicare Advantage plans and continues to promote improvements in quality of care for beneficiaries. Together, these changes will ensure the Medicare program remains strong and stable for current and future enrollees.

Rate Announcement and Call Letter

For a general fact sheet on the 2017 Rate Announcement and Call Letter, click to Medicare site. It is also available on this page below this report. See “Strengthening Medicare Advantage and Part D.”

For more information on Puerto Rico and the 2017 Rate Announcement and Call Letter, click here.

For more information on steps the Department of Health and Human Services have taken to help ensure that residents of Puerto Rico continue to have access to quality and affordable health care and a more sustainable future, click here

For more information on Medicare Employer Retiree Plans (Employer Group Waiver Plans) and the 2017 Rate Announcement and Call Letter, click here

The 2017 Rate Announcement and Call Letter may be viewed through here and then selecting “2017 Announcement.”  



Strengthening Medicare Advantage and Part D

General fact sheet on the 2017 Rate Announcement and Call Letter

Providing high quality and affordable care for all Medicare beneficiaries, with a particular emphasis on improving care for low income and dually eligible beneficiaries

On April 4, CMS released final updates to the Medicare Advantage and Part D programs through the 2017 Rate Announcement and Call Letter. These policies seek to provide stable payments to plans, and make improvements to the program for plans that provide high quality care to the most vulnerable beneficiaries.

CMS released the Advance Notice and Draft Call Letter on Friday, February 19, 2016. CMS accepted public comments through Friday, March 4, during which time CMS received feedback on the proposed policies. CMS reviewed the comments closely and adjusted some policies in response to stakeholder concerns. 

Recent Trends in Medicare Advantage and Part D

The Medicare Advantage and Part D programs continue to grow and thrive. In the Medicare Advantage program:

  • Ψ  Enrollment continues to grow – enrollment has increased by more than 50 percent since passage of the Affordable Care Act to an all-time high of more than 17.1 million – or 32 percent of – Medicare beneficiaries enrolled in a Medicare Advantage plan.

  • Ψ  Plan quality continues to improve – the percentage of Medicare Advantage enrollees in four or five star plans has almost quadrupled since 2009 to 71 percent. About one-third of prescription drug plan enrollees are in standalone Part D plans with four or more stars, compared to 27 percent of enrollees in such plans in 2009.

  • Ψ  Premiums remain affordable – average plan premiums today are lower than before the Affordable Care Act went into effect, dropping about 10 percent between 2010 and 2016.

Strengthening Medicare Advantage and Part D for All Medicare Beneficiaries

CMS is committed to making the Medicare Advantage and Part D programs high quality health care options for all Medicare beneficiaries – including low income and dually eligible beneficiaries.  As part of that commitment, the 2017 Rate Announcement and Call Letter make changes to the risk adjustment model used to calculate payments to Medicare Advantage plans and to the Star Ratings system used to evaluate plan performance in order to better account for the costs associated with caring for these enrollees. In both cases, the updates reflect a public process through which CMS shared research findings and solicited public comment. 

2017 Rate Announcement

In the 2017 Rate Announcement, CMS finalized updates to the methodologies to pay MA plans and Part D sponsors that are intended to improve payment precision and encourage quality, while continuing to protect beneficiaries from significant increases in premiums and out of pocket costs. 

Net Payment Impact

The chart below shows the expected impact of the policy changes on plan payments relative to last year. 


2017 Advance Notice

2017 Rate Announcement

Effective Growth Rate



Transition to ACA Rules






Improved star ratings



Risk model revision



MA coding intensity adjustment






Expected Average Change in Revenue from Prior Year



Coding Trend



Expected Average Change in Revenue



1 Rebasing/re-pricing impact was dependent on finalization of average geographic adjustment index and is only available with the publication of the Rate Announcement.
2Totals may not add due to rounding.

Risk Adjustment Model

In response to significant stakeholder concerns that the current Risk Adjustment Model does not effectively capture the full cost to Medicare Advantage plans of serving dually eligible beneficiaries, CMS conducted extensive research and released a description of potential revisions to the model in a Request for Comment in October 2015 ().

Following this public process, CMS is finalizing the new Risk Adjustment Model for 2017. The new model has separate coefficients for partial benefit dually eligible beneficiaries, full benefit dually eligible beneficiaries, and non-dually eligible beneficiaries.  These changes will improve the precision of the payments made to plans, including increases in payments for plans serving full benefit dually eligible beneficiaries, and will support health equity and payment accuracy.

Coding Pattern Adjustment

Each year, as required by law, CMS makes an adjustment to plan payments to reflect differences in diagnosis coding between Medicare Advantage organizations and fee-for-service (FFS) providers. For CY 2017, CMS is finalizing the proposed policy to implement the statutory minimum adjustment.

Using Encounter Data

Historically, CMS has used diagnoses submitted into CMS’ Risk Adjustment Processing System (RAPS). In 2016, CMS began using diagnoses from encounter data to calculate risk scores, by blending encounter data-based risk scores with RAPS-based risk scores. In 2017, CMS will continue using a blend, with a higher percentage of encounter data-based risk scores than in 2016. However, as a result of stakeholder feedback, a lower percentage of encounter-data based risk scores will be used in 2017 than was proposed in the Advance Notice.  Specifically, for Payment Year 2017, risk scores will be calculated with a blend of a 25 percent weighting of encounter data and FFS and a 75 percent weighting of RAPS and FFS, with the intent to fully phase in the use of encounter data by 2020.

Medicare Employer Retiree Plans (Employer Group Waiver Plans)

CMS has authority under the Social Security Act to waive or modify requirements that hinder the design of, the offering of, or the enrollment in employment-based Medicare plans offered by employers and unions to their members in order to facilitate the offering of such plans. CMS will implement an alternate payment policy for Medicare Employer Retiree Plans beginning in 2017. In response to stakeholder feedback, CMS will phase-in this policy over two years, and will improve the timeliness of the proposed new payment system by providing CY 2017 final Medicare Employer Retiree Plans local county payment rates now rather than in August.

Medicare Employer Retiree Plans serve specific employer groups and are either offered through negotiated arrangements between Medicare Advantage plans and employer groups or by the employer directly. Because of the nature of these unique agreements, these plans do not compete against other plans through the bidding process and therefore have little incentive to submit lower bids. CMS has already waived bidding requirements for Medicare Employer Retiree Plans in Part D and set payment amounts for Part D plans based on the competitive bids submitted for non-Medicare Employer Retiree Part D plans.

2017 Call Letter

In the 2017 Call Letter, CMS finalized a number of proposed improvements to the Medicare Advantage and Part D programs.  These updates are intended to drive quality improvement and more accurately reflect plan performance in Star Ratings.

Star Ratings – Adjusting for Socioeconomic Status

Medicare Advantage plans that achieve high Star Ratings are eligible for Quality Bonus Payments. Some plans and other stakeholders believe that enrollment of a high percentage of dually eligible enrollees and/or enrollees who receive a low income subsidy limits plans’ ability to achieve high Medicare Advantage or Part D Star Ratings. In response, CMS conducted extensive research on this issue, releasing findings and requesting comment on proposed methodological changes in 2015. 

Following this public process, CMS will implement as proposed an interim analytical adjustment to account for low income subsidy/dual eligible and/or disability status. The adjustment factor will vary by a contract’s proportion of low income subsidy/dually eligible and disability status beneficiaries.  Through this interim adjustment, CMS seeks to more accurately capture true plan performance, while work continues by the HHS Assistant Secretary for Planning and Evaluation (ASPE) and measure stewards in this important area.

Reducing Inappropriate Use of Opioids in Medicare Part D

The Administration is committed to reversing the growing opioid epidemic. Last fall, CMS released information on the success of the Part D Overutilization Monitoring System in lowering the number of Part D beneficiaries identified as potential opioid overutilizers. CMS also released a new mapping tool showing geographic comparisons of Medicare Part D opioid prescription claims. 

Continuing these efforts, CMS will implement a number of updates proposed in the 2017 draft Call Letter to further reduce the unsafe overutilization of medications by Part D beneficiaries.  For 2017, CMS expects Part D sponsors to implement formulary-level cumulative opioid point-of-sale edits, using a soft edit, a hard edit, or both edits to prevent opioid overutilization and to work toward a hard edit, at a minimum, in 2018 with reasonable controls to limit false positives at the point-of-sale.

Access to Medication-Assisted Treatment

In October 2015, the President issued a Memorandum to Federal Departments and Agencies to identify barriers to medication-assisted treatment (MAT) for opioid use disorders and develop action plans to address these barriers.  In response, CMS will use available vehicles to inform physicians, MA organizations and Part D sponsors about MAT coverage, including clarifying that MA plans have the same obligation to cover substance use disorder treatment as is available under Original Medicare and that Part D plans must ensure access to MAT that are covered under Medicare Part D.

CMS will continue to review the utilization management strategies and formulary tiering for medication-assisted treatment (MAT), such as buprenorphine-containing products, for all Part D sponsors.  Strategies that hinder the access to these important therapies will not be approved. 

Drug Utilization

CMS finalized a number of updates intended to address drug overutilization, waste, and costs within the Part D program in the CY 2017 Call Letter:

  • Ψ  Allowing Part D plans to designate specific drugs for which a beneficiary’s initial fill could be limited to a one month supply, regardless of whether the drug is otherwise available as an extended days’ supply. This change should eliminate waste when patients’ initial doses may change or if they are removed from therapy due to side effects, adverse reactions, or lack of clinical response. After the first one month supply, the change to extended days’ supply would be seamless for the beneficiary.

  • Ψ  Encouraging sponsors to inform beneficiaries directly of additional formulary drugs that become available mid-year, as such drugs may provide more value or better quality options.

  • Ψ  Adding, by 2017 (or possibly sooner), a link from the Medicare Plan Finder website to the Medicare Drug Spending Dashboard to raise beneficiary awareness of drug spending by the Medicare program and beneficiaries.

The Rate Announcement and Call Letter may be viewed by going here and selecting “2017 Announcement.”


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