Mandatory Spending
Function 570 - Medicare
Modify Payments to Medicare Advantage Plans for Health Risk
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Change in outlays | |||||||||||||
Increase the minimum risk score reduction from 5.9 percent to 8 percent | 0 | 0 | -15 | -17 | -16 | -18 | -20 | -22 | -26 | -25 | -48 | -159 | |
Increase the minimum risk score reduction from 5.9 percent to 20 percent | 0 | 0 | -98 | -113 | -103 | -122 | -132 | -143 | -170 | -168 | -314 | -1,049 | |
Use two years of diagnostic data to calculate risk scores and exclude diagnoses from health risk assessments | 0 | 0 | -12 | -13 | -12 | -14 | -16 | -17 | -20 | -20 | -37 | -124 | |
This option would take effect in January 2027.
More than half of Medicare beneficiaries are enrolled in the Medicare Advantage program. Under Medicare Advantage, private health insurers receive a payment from the government for each beneficiary they enroll. The remaining Medicare beneficiaries are enrolled in the Medicare fee-for-service (FFS) program. In that program, the government pays providers directly for medical services.
Payments to insurers in the Medicare Advantage program depend, in part, on the risk scores of a plan's enrollees. Plan beneficiaries are assigned risk scores on the basis of recorded health conditions and other characteristics. Higher risk scores indicate higher expected health care spending, and an insurer is paid more for enrollees with higher risk scores. Risk scores are calculated using the diagnoses "coded" on an enrollee's claims from the previous calendar year. Medicare Advantage insurers have a financial incentive to code more diagnoses for their enrollees and to ensure that diagnoses are carried over from year to year.
In the Medicare FFS program, payments to providers are not tied to risk scores. Thus, providers have less of a financial incentive to code beneficiaries' diagnoses or to carry over diagnoses from year to year.
One tool for coding a beneficiary's diagnoses is a health risk assessment (HRA). HRAs are evaluations by providers that can help determine a beneficiary's health needs and set a course for treatment. In Medicare FFS, diagnoses from an HRA are only coded when a beneficiary receives care associated with that assessment. Medicare Advantage insurers often code diagnoses even if the beneficiary receives no subsequent care. To account for differences in coding, federal law currently requires the Centers for Medicare & Medicaid Services (CMS) to apply an across-the-board reduction of at least 5.9 percent to Medicare Advantage plan payments to account for the difference in coding intensity between FFS and Medicare Advantage.
This option consists of three alternatives. The first alternative would require CMS to increase the across-the-board reduction in payments to Medicare Advantage plans from at least 5.9 percent to at least 8 percent. The second alternative would require CMS to increase the across-the-board reduction in payments to Medicare Advantage plans to at least 20 percent. The third alternative would make two changes to risk-adjustment policy. First, to calculate risk scores in both FFS and Medicare Advantage, CMS would be required to use two years of diagnostic data to calculate risk scores rather than one, which would decrease the difference in coding intensity between Medicare Advantage and FFS. Second, risk scores would no longer reflect diagnoses captured from health risk assessments.
This option would result in higher cost sharing, higher premiums, and fewer supplemental benefits for Medicare Advantage enrollees. Other effects would depend on how the change in outlays for Medicare Advantage affected the benefits passed through to Medicare recipients and the profits of Medicare Advantage insurers.