Medicare Advantage Payment Process

Medicare Advantage provides anyone eligible for Medicare the option of enrolling in a private health insurance plan, as opposed to receiving benefits through the traditional fee-for-service (FFS) option. While Medicare beneficiaries have had some alternative options for receiving benefits since shortly after Medicare’s creation in 1965, the availability, design, and cost of such plans has changed dramatically over time.

Medicare Part C was formally created through the Balanced Budget Act of 1997 and was known at the time as Medicare+Choice (M+C). This legislation provided the Centers for Medicare and Medicaid Services (CMS) the authority to contract with organizations to provide beneficiaries a variety of health plan options that would cover, at a minimum, all of the services covered by Medicare Parts A and B. The Medicare Modernization Act of 2003 (MMA) renamed the program Medicare Advantage (MA), added new plan options (including regional plans), and changed the way plans are paid. Payments are currently based on benchmark rates, plan bids, quality ratings, and enrollee risk scores, but the formulas are slightly different for local plans and regional plans. Each of these components and payments for the two types of plans is explained below.

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