What’s New in the 2021 Final Rate Announcement for Medicare Advantage and Part D Plans?

On April 6, 2020, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2021 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (Rate Announcement). The Rate Announcement finalizes MA payment methodology and policies previously proposed by Parts I and II of the CY 2021 Advance Notice (published on January 6 and February 5, 2020, respectively).

In previous years, CMS has also published a Call Letter along with the Rate Announcement; however, in a departure from past practice, CMS is not releasing a Call Letter with the Advance Notice. Instead, many of the policy items provided in past Call Letters are being codified through rule making, and in accordance, CMS released the Contract Year 2021 and 2022 MA and Part D Proposed Rule in early February. (Stakeholder comments on the proposed rule were accepted through April 6, 2020, and CMS has not provided an expected release date for the Final Rule. Other information and instructions previously provided by the Call Letter [e.g., bid instructions, calendar] have been issued by memoranda.)

As part of this recent guidance, CMS released the CY 2021 Rate Book and calculation data, which provides detail on the county-level Part C benchmarks, and a fact sheet summarizing the Rate Announcement. CMS is projecting a 1.66% net payment increase for aggregate MA payments, up from 0.93% in the Advance Notice. The difference is primarily due to an increase in the effective growth rate (4.07% versus 2.99%), somewhat offset by the effect of rebasing. The table below summarizes CMS’ estimated impact of methodology elements on net MA Part C payments:

Impact2021 Final Announcement2021 Advance Notice
Effective Growth Rate4.07%2.99%
Rebasing/Repricing(0.35%)N/A
Change in Star Ratings0.23%0.23%
Risk Model Revision0.25%0.25%
Normalization(2.54%)(2.54%)
Expected Average Change in Revenue1.66%0.93%

Stakeholders had the opportunity to submit comments on both parts of the Advance Notice through March 6, 2020. The announcement summarizes the comments received along with CMS’ responses; notwithstanding stakeholder comments, CMS adopted substantially all elements of the proposed methodology reported in both parts of the Advance Notice. Below are the notable changes for health plans.

Part C Rate Methodology

  • Dialysis Beneficiary Enrollment/End State Renal Disease (ESRD): Beginning in CY 2021, Medicare fee-for-service (FFS) beneficiaries receiving dialysis will be eligible to enroll in MA Plans, but the industry has expressed concern regarding payment adequacy for this cohort. Stakeholder comments on the Advance Notice voiced these concerns regarding the application of these rates, predominately related to rate and trend volatility, the likelihood of adverse selection, and issues with the Bid Pricing Tool as it applies to ESRD members. However, CMS made no changes to the payment model from the Advance Notice.
  • Coding Pattern Adjustment: CMS has opted to maintain the coding adjustment at the statutory minimum 5.9%; therefore, there is no year-over-year effect on payments.
  • Risk Adjustment Model: Continuing implementation of the 21st Century Cures Act, 2021 risk scores will reflect a blend of 75% from the CMS-Hierarchical Condition Category (HCC) model (using diagnoses from RAPS/EDS and FFS) and 25% calculated using the alternative payment condition count (APCC) model (versus 50%/50% for CY 2020). The APCC model for the blended risk score calculation includes additional HCCs related to mental health and pressure ulcers, as well as variables that account for the number of conditions a beneficiary may have.

Puerto Rico

Stakeholders continued to express concern over issues that cause Puerto Rico benchmarks to be understated. The Rate Announcement notes that a far greater proportion of Medicare beneficiaries receive benefits through MA in Puerto Rico than in any other state or territory.

However, a disproportionate number do not have both Parts A and B, although only those with both Parts A and B are eligible to enroll in MA. Beginning in CY 2021, CMS has adopted a policy where Puerto Rico MA county rates will be based on the relatively higher costs of beneficiaries in FFS who have both Medicare Parts A and B. Other policies specific to Puerto Rico include continuing the statutory interpretation that permits certain counties to qualify for an increased quality bonus adjusted benchmark and applying an adjustment to reflect the nationwide propensity of beneficiaries with zero claims.

Bonus/Rate Ceiling

The current methodology for calculating Part C rates was established by the Affordable Care Act (ACA). One provision of the ACA required that the benchmark rate for any county, as calculated under the new methodology, could not exceed that under the old calculation. Accordingly, each year, CMS calculates both “new” and “old” rates for each county. This has caused a significant number of counties to be capped, and MA plans in those counties are unable to include the quality bonus in their bid calculations. A preliminary review of the 2021 rate book and calculation data shows a reversal of this trend, with a decreasing number of counties affected by the ceiling. The CY 2021 rate calculation shows 1,334 counties capped for the 5% bonus, down from 1,550 in CY 2020.

Part D

Benefit parameters for Part D are determined by statutory calculations, so there are no material changes from the Advance Notice. The table below summarizes parameters for the Part D Standard Benefit for CY 2020 versus CY 2021. Additional detail of benefit parameters for the various categories of subsidized beneficiaries is presented in the Rate Announcement.

The benefit parameters and cost estimates reflect a continuing trend of reduction in plans’ Part D spend. The reduction in plan costs is largely the result of rising overall drug costs due to increasing use of specialty drugs, which has caused more enrollees to reach the catastrophic layer where costs are borne by CMS. This issue has been highlighted by Congress and will likely be addressed in whatever comprehensive prescription drug legislation is ultimately passed. In the meantime, CMS notes it is constrained by the current statutory application.

Part D Standard BenefitCY 2020CY 2021
Deductible$435$445
Initial Coverage Limit$4,020$4,130
Out-of-Pocket (OOP) Threshold$6,350$6,550
Total Covered Spending at OOP Threshold$9,038.75$9,313.75
Estimated Total Covered Spending at OOP Threshold$9,719.38$10,048.39
Minimum Cost Sharing in Catastrophic Coverage Portion  
    Generic/Preferred Multi-source Drug$3.60$3.70
    Other$8.95$9.20

Star Ratings

In the past, Star Ratings program updates were released through the Call Letter. Because the CY 2019 Final Rule required changes in the Star Ratings program to be accomplished through rule making starting in CY 2021, the Rate Announcement does not include Stars changes.

However, the Rate Announcement fact sheet does recap provisions of the Medicare and Medicaid Programs: Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency Interim Final Rule, which proposes changes to CY 2021 Star Ratings to address the disruption to data collection and plan performance in 2020 posed by the COVID-19 pandemic. CMS is allowing comments to the interim final rule through June 1, 2020, after which a final ruling will give plans confirmation on the future of the program.

Bid Calendar

Despite the issues posed by the COVID-19 emergency, CMS has not announced any changes to the due dates for Part C and Part D CY 2021 bid submissions, and at this time, all bids are due June 1, 2020. CMS previously published the complete bid calendar via memorandum, a copy of which may be accessed here.

Final Thoughts

CMS is rapidly publishing guidance, policy updates, and other waivers related to the COVID-19 pandemic… It can be difficult to keep up with the latest news. Subscribe to the GHG Newsletter to stay up-to-date with recent announcements and what it means for your organization.

If you have any questions about the Rate Announcement, interim final rule, or what you should be doing to prepare for any upcoming changes, contact us to start the conversation.

Jeff Fox
Jeff Fox

Jeff Fox is President of Gorman Health Group (GHG). In this role as a member of GHG’s senior leadership team for more than a decade, he is intimately involved with aspects of both business development and client engagement management. Jeff brings GHG clients more than 25 years of experience as one of the nation’s leading experts on government-sponsored programs as well as a passion for health insurance sales, marketing, and product development.

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