Medicare officials call for gradual shift in calculation of Medicare Advantage benchmarks to reflect growing popularity

Biden administration officials emphasized the need to change how Medicare Advantage’s (MA's) benchmarks are calculated as the program’s popularity explodes but cautioned that any shifts would be very gradual.

Officials with the Centers for Medicare & Medicaid Services and the Center for Medicare and Medicaid Innovation (CMMI) spoke about MA during a webcast Wednesday held by consulting firm Moss Adams.

One of the key topics discussed was how to calculate MA benchmarks that determine the payment rate for a plan. 

Currently, an MA plan offers a bid based on the historical fee-for-service Medicare spending in a service area. However, MA has exploded in popularity in recent years and topped 30 million enrollees for 2023.

With the growing market penetration, plans may not have a fee-for-service spending benchmark to bid against.

“If we don’t change the way we think about benchmarks as MA becomes a bigger and bigger part of the program you are teeing off a smaller and smaller portion of the program setting these payment rates,” said Liz Fowler, Ph.D., director of CMMI. “We want to make sure we are setting accurate benchmarks and creating opportunities for organizations that want to come into the program.”

An administrative benchmark would tie payments to an economic indicator like the gross domestic product and could determine whether spending would rise or fall on indicators like inflation or healthcare utilization, according to a 2021 analysis published in the American Journal of Managed Care. 

Fowler cautioned that it is “not easy to get from here to there, though. We can’t move too quickly. We need to make sure we are doing it in a way that doesn’t upset the current nature of the program as we make some of these changes.”

The Medicare Payment Advisory Commission (MedPAC), an independent body that advises Congress on Medicare issues, has called for a similar benchmark change in its June 2021 report (PDF) to Congress. MedPAC recommended changing the benchmark to reflect not just fee-for-service spending in a given area but also national rates. 

“The use of standardized national spending reduces variation in local benchmarks to accommodate the availability of MA plans both in areas where FFS spending is high and in areas where it is low,” the report said.