Glossary
A document, typically sent out to beneficiaries in September in advance of the annual open enrollment period. The notice explains any changes to a Medicare plan’s coverage and/or costs for the following year. The changes outlined in the document go into effect the following January.
See RADV.
In the Medicare Advantage payment system, an amount set administratively by the Centers for Medicare & Medicaid Services that reflects the maximum that Medicare would pay to an MA plan to provide Part A and Part B benefits for each enrollee. CMS sets benchmarks based on projected levels of spending for an average beneficiary who has original Medicare in the same service area.
In the Part D payment system, the maximum amount that Medicare would pay for basic-benefit premiums on behalf of an enrollee who receives the low-income subsidy. Annual benchmarks are calculated separately for each of 34 Part D regions (states or combinations of states).
In this context, someone who is eligible for and enrolled to receive Medicare benefits.
In the Medicare Advantage payment system, a plan sponsor’s bid represents its expected cost of providing Medicare Part A and Part B services, including administrative costs and profit, to a beneficiary of average health who lives in a specific service area (usually a county).
A category of products licensed by the Food and Drug Administration that are often large, complex molecules produced through biotechnology from living organisms. They include a wide range of products such as therapeutic proteins, monoclonal antibodies, blood and blood components, and vaccines.
A type of biological product licensed by the Food and Drug Administration that is highly similar to an innovator product (also called a reference product) in terms of having no clinically meaningful difference in safety, purity, or potency from the innovator product.
In the context of Part D, a fee that reflects the fair market value for an itemized service. Pharmacy benefit managers receive a variety of types of remuneration including post-sale rebates from drug manufacturers, discounts, and other types of price concessions that are sometimes calculated as a percentage of a drug’s price. Some proposed legislation would instead require that payments to PBMs be provided through fixed-dollar bona fide service fees.
In the context of Medicare Advantage, this refers to differences in diagnosis coding practices between beneficiaries of similar health who are in Medicare Advantage plans compared with those in original Medicare.
Because CMS’s risk-adjustment model for Medicare Advantage is developed using diagnosis codes for beneficiaries in original FFS Medicare, CMS applies an adjustment to risk scores to account for higher coding intensity in MA plans. Under current law, the minimum annual adjustment is 5.9%, but CMS has the authority to apply a higher adjustment.
Enrollee cost sharing that is charged as a percentage of the price of a health service or prescription.
Within the context of Medicare Advantage, an approach in which Medicare would compare bids from plan sponsors to determine how much the program would pay plans to provide Medicare benefits.
A fixed-dollar amount charged by a health plan as cost sharing for a health care service or prescription.
A payment required from a patient by their health plan it for a service, item, or prescription drug. It may take the form of a flat-dollar copayment or a percentage coinsurance. For example, under original Medicare, a beneficiary is required to pay for 20 percent of the Medicare-allowed charge for most physician services.
In Part D, this refers to a small dollar amount (typically $2 or less) by which a plan sponsor may reduce its enrollee premium to match a regional premium benchmark. Regional low-income subsidy benchmarks reflect the maximum amount that Medicare will pay as a premium on behalf of an LIS enrollee.
In Medicare Advantage, sponsor contracts that are rated by CMS with quality scores of 4 stars or higher receive a 5% bonus to their benchmark level. Those bonuses are doubled for contracts with high star ratings that operate in metropolitan counties with a high percentage of MA enrollment and low average FFS spending.
Beneficiaries who are dually eligible for Medicare and Medicaid benefits. Duals qualify automatically to receive Part D LIS benefits.
A type of Medicare Advantage or stand-alone Part D plan offered by a former employer or union. EGWPs are not open to all Medicare beneficiaries; only to those affiliated with the employer. MA EGWPs must provide all Medicare Part A and Part B services (most also provide Part D coverage), but they are not subject to certain MA rules such as those related to marketing and open enrollment. Stand-alone Part D EGWPs only provide prescription drug coverage.
Used in reference to original (also called traditional) Medicare where fees that are set administratively by the Centers for Medicare & Medicaid Services are paid to health care providers for services rendered.
A list of drugs that a plan will cover along with its terms and conditions for doing so. Formularies are usually developed and operated by pharmacy benefit managers on behalf of health plans. Typically, specific drugs are placed on cost-sharing tiers designed to encourage enrollees to use preferred drugs over nonpreferred ones. Formularies also describe whether a prescription requires prior authorization or has other restrictions.
Visits by providers (sometimes in a beneficiary’s home) that can help determine a beneficiary's health needs and set a course for treatment. However, health risk assessments by some MA plan sponsors have been more likely to record a diagnosis for which a beneficiary receives no subsequent care.
A complex biological product that is the first of its kind to be produced from living organisms and licensed. It is also called a reference biological product.
Additional financial assistance provided by Medicare to individuals who enroll and have low assets and incomes less than or equal to 150% of the federal poverty level that covers most of their Part D cost sharing and premiums.
A tool on CMS’s website that Medicare beneficiaries can use to compare the Medicare Advantage and Part D plan options available where they live. The Plan Finder also provides information about Medigap policies offered by private insurers.
A new program required of Part D plans (both stand-alone and Medicare Advantage prescription drug plans) beginning in 2025 that allows enrollees who expect to have high or uneven cost sharing for their prescriptions over the year to spread out cost-sharing amounts more evenly. Each Part D plan sponsor will administer their own payment plan and must notify enrollees of the option to enroll in it. Enrollees will no longer pay cost sharing at the pharmacy counter-instead, their Part D plan will bill them monthly.
A type of supplemental insurance policy that beneficiaries purchase from private insurance companies to help pay for cost-sharing requirements in original (traditional) Medicare. In most states (all except Connecticut, Maine, Massachusetts, and New York), beneficiaries only have a guaranteed right to purchase a Medigap during the 6-month period after they first enroll in Medicare Part B. Most Medigap policies do not cover benefits outside of those in Part A and Part B - for example, they do not include vision, dental, hearing care, long-term care services, or outpatient prescription drugs.
A method sometimes used for risk adjustment in quality measurement that first stratifies health care plans or providers into peer groups based on enrollees’ or patients’ social risk factors before measuring health care performance. Quality measures are compared among plans or providers within a peer group rather than across all plans or providers.
Organizations that, on behalf of health plan sponsors, design formularies, negotiate payment rates with networks of pharmacies, and negotiate post-sale rebates from pharmaceutical manufacturers.
Six therapeutic classes of drugs that, in Part D, plan sponsors must cover all or substantially all products on their formularies. The six classes are anticonvulsants, antidepressants, antipsychotics, immunosuppressants, antiretrovirals, and antineoplastics.
An individual, facility, or agency that provides licensed health care services to a patient, such as a physician, hospital, nursing facility, or home health care agency.
Within the Medicare Advantage payment system, plans that have a quality rating of 4 or 5 stars are awarded bonus amounts to their benchmarks. In certain counties, those quality bonus amounts are doubled for plans with high rankings.
Within the Medicare Advantage payment system, the method of setting a county’s payment benchmark based on its average per capita FFS spending level. Counties are ranked into quartiles by their projected per capita levels of spending for beneficiaries in original Medicare. From the lowest-spending quartile of counties to the highest, MA benchmarks are set at 115%, 107.5%, 100%, and 95% of projected FFS spending for the payment year. Other county-level adjustments to the benchmarks apply as well. Benchmarks vary not only by county but also by plan, depending on a plan’s star rating.
Risk-Adjustment Data Validation audits. These are conducted by CMS to verify that the diagnoses for enrollees submitted by MA plans are supported in patients’ medical records. They can be used to recoup Medicare payments from plans that stem from risk-adjustment discrepancies.
When an MA plan sponsor bids below its benchmark, Medicare requires the plan to use a portion of that difference to lower enrollee cost sharing or premiums, provide additional benefits not covered under original Medicare, or provide more generous Part D drug benefits. That dollar amount is called the MA rebate.
A payment from a pharmaceutical manufacturer to a pharmacy benefit manager made once a plan enrollee has filled a prescription for the manufacturer’s drug at a pharmacy. PBMs negotiate rebates from manufacturers in return for placing the manufacturer’s drug on a plan’s formulary or on a preferred cost-sharing tier. Rebates effectively discount a drug’s net price to the PBM or plan, but not the price faced by the plan enrollee at the point of sale
An arrangement in which an insurer receives financial protection against high losses associated with the original insurance it provides to enrollees. For example, some health plans purchase private reinsurance to protect against high losses if an enrollee has catastrophic levels of health care spending. In Part D, Medicare provides some reinsurance to plans for enrollees with prescription drug spending higher than the standard benefit’s out-of-pocket cap. Some analysts have suggested that MA plan sponsors contribute to a financial pool that would reinsure sponsors in the event of unexpectedly high enrollee costs.
A process for adjusting payments to plans (among other uses) to reflect the relative cost of providing each enrollee’s health care. Risk-adjustment models typically predict enrollee costs using a multiple regression framework based on age, prior health conditions, and other characteristics.
A numeric factor from a risk-adjustment model that describes how the expected cost of care for an individual enrollee compares with an enrollee of average health.
MA plans that offer benefits tailored for three populations: beneficiaries who are dually eligible for Medicare and Medicaid (D-SNPs), have certain chronic conditions (C-SNPs), or reside in institutions, usually long-term care facilities (I-SNPs).
A category of MA supplemental benefits that plan sponsors may target toward enrollees with a certain health status or disease state if the provision of an item or service has a reasonable expectation of maintaining health or overall function. Examples of SSBCIs include produce, pest control services, and indoor air quality equipment.
Each year, CMS assigns MA plans and Part D plans a quality rating of one to five stars based on a combination of performance measures, with one being poor quality, three being average quality, and five being excellent quality. In MA, the ratings are intended to be used as an incentive to reward plans providing higher quality care and to help inform beneficiary decision making. In Part D, there is no direct reward to the plans, but ratings are available to help inform beneficiary decision making.
In the context of Medicare Advantage, this refers to coverage beyond that provided in Part A and Part B of original Medicare. For example, MA plans may offer limited dental, vision, and hearing services which are typically not provided in original Medicare. In the context of Part D, supplemental benefits refers to enhanced coverage that is more generous (i.e., has a higher actuarial value) than Part D’s standard benefit design, such as eliminating a deductible.
Tools used by managed care organizations in which they review or limit the provision of services, equipment, or medications to ensure appropriate use and to reduce costs. Common types of utilization management include prior authorization (pre-approval), step therapy (a requirement that the patient try an initial treatment first before they are eligible to receive a higher-cost treatment), and quantity limits.
Adverse social conditions that can contribute to poor health, such as food insecurity, a lack of housing or poor housing conditions, or low income levels.