The Use of Benchmarks for Payment in Medicare Advantage and Necessary Adjustments

Medicare Advantage plans receive monthly capitated payments to provide health care to enrollees. The Centers for Medicare & Medicaid Services (CMS) determines the maximum per beneficiary prospective monthly payment that could be paid to a health plan. The benchmark is based on the average spending per beneficiary in Traditional Fee-For-Service (FFS) Medicare, adjusted for the service area. Counties are divided into quartiles, with benchmarks ranging from 95 percent of Traditional FFS Medicare spending, typically in urban counties, to 115 percent, typically in rural counties. The higher benchmarks are intended to encourage health plan participation. Lower benchmarks in the higher spending areas are intended to contain spending.