Medicare Advantage (MA) is the private sector-based counterpart to fee-for-service (FFS) Medicare, enrolling more than half of all Medicare beneficiaries. In a new primer, Director of Health Care Policy Michael Baker walks through key factors for calculating MA premiums, including necessary data points, plan responsibilities, and impacts on beneficiaries.

Key points:

• MA operates under a capitated payment model, where Medicare gives plans an agreed-upon amount per plan enrollee in exchange for assuming financial risk and complying with program rules.
• Premiums follow a benchmark-bid-rebate formula that includes government-set benchmarks, plan bids, risk adjustment, and quality bonuses to determine both Medicare’s payments to plans and the amounts that beneficiaries pay in premiums and cost-sharing.
• This primer explains how the Centers for Medicare and Medicaid Services sets county-level benchmarks based on local FFS spending, how plans submit standardized bids for Part A and B benefits, and how the relationship between bids and benchmarks determines plan payments, rebates, and the room available to lower premiums or enhance benefits.

This primer is part of a three-part series on Medicare Advantage. The first paper focused on the annual rulemaking cycle, and the next will focus on risk adjustment and coding.

Read the analysis.