Fact Sheet

Medicare Advantage Risk Adjustment

Risk adjustment is used in insurance to ensure that the payment is adequate to meet the expected costs of care for beneficiaries based on their health status. Medicare Advantage plans receive a capitated payment for each individual and accept financial responsibility for covering all services guaranteed under Medicare Part A and B.

Key Facts
• CMS adjusts Medicare Advantage plan payments to account for cost differences associated with health status and demographic factors through a process called risk adjustment.
• Risk adjustment ensures predictable and actuarially sound payments to Medicare Advantage plans.
• Accurate risk adjustment is essential for Medicare Advantage plans to ensure adequate resources to care for patients with complex conditions.
• CMS recently made changes to the risk adjustment system to better account for dual-eligible beneficiaries. Challenges remain in accounting for other high-need beneficiaries with multiple, serious chronic conditions.

Policy Recommendation
Accurate risk adjustment is essential to ensuring that Medicare Advantage plans and providers have the resources necessary to provide innovative, affordable, high quality care to all beneficiaries. CMS should work with Medicare Advantage stakeholders to ensure accurate risk adjustment and adequate payment for all enrollees, including those who are dually eligible for Medicare and Medicaid and those with multiple chronic conditions.