CMS Proposes 2014 Payment and Policy Updates for Medicare Health and Drug Plans

Greater Value for Medicare Beneficiaries and Improved Payment Accuracy

Beneficiaries will get greater protections, value, and care in the Medicare services they receive through proposed policies released today by the Centers for Medicare & Medicaid Services (CMS). Today’s 2014 Advance Notice and draft Call Letter takes important steps to improve payment accuracy for Medicare Advantage (Part C) and in Medicare prescription drug (Part D) plans for 2014, without shifting costs to beneficiaries. Since the Affordable Care Act was passed in 2010, Medicare Advantage premiums have fallen by 10 percent and enrollment is expected to increase by an estimated 28 percent through this year. In addition, costs of the defined standard Part D plan will be lower in 2014 than they are in 2013. The standard Part D deductible will be $310, down from $325 in 2013, and cost-sharing amounts will also be lower.

CMS also announced today a proposed rule implementing the Affordable Care Act’s medical loss ratio (MLR) requirements for Medicare Advantage and prescription drug (Part C and Part D) plans that promote greater accountability and transparency. The proposed rule limits how much plans can spend on marketing, overhead, and profit. Similar MLR requirements are already benefiting consumers in the private health insurance market.  

“The Affordable Care Act helps us strengthen Medicare Advantage and Part D,” said Jonathan Blum, CMS acting principal deputy administrator and director of the CMS’ Center for Medicare. “We are working to ensure that people with Medicare have affordable access to health and drug plans, while making certain that plans are providing value to Medicare and taxpayers.”

The minimum medical loss ratio (MLR) outlined in today’s proposed rule will ensure more value for Medicare beneficiaries enrolled in Medicare Advantage and Medicare Prescription Drug plans. Under the Affordable Care Act, Medicare health and drug plans must meet a minimum medical loss ratio, beginning in 2014. Plans must spend at least 85 percent of revenue on clinical services, prescription drugs, quality improvements, and/or direct benefits to beneficiaries in the form of reduced Medicare premiums. Enrolled seniors and individuals with disabilities will get more value and better benefits as plans spend more on health care.   

Guidance released today includes the Advance Notice and the draft Call Letter. CMS is accepting public comment on the proposed guidance released today.

Proposed guidance in today’s Advance Notice and draft Call Letter increases value and protections for beneficiaries:

  • Lower Out-of-Pocket Drug Spending:
  • Greater Protection for Beneficiaries:
  • Improved Coordination of Care:

Other proposals include those aiming to closely align payments in Medicare Advantage (Part C) with fee-for-service Medicare (Parts A and B) and to improve payment accuracy.

In addition, the 2014 statutory updates to the annual parameters for the defined standard Part D prescription drug benefit are:

Part D Benefit Parameters 2013 2014
Defined Standard Benefit
Deductible $325 $310
Initial Coverage Limit (Total drug costs after deductible before hitting coverage gap) $2,970 $2,850
Out-of-Pocket Threshold (Total amount beneficiary pays before hitting catastrophic phase) $4,750 $4,550
Minimum Cost-sharing for Generic/Preferred Multi-Source Drugs in the Catastrophic Phase $2.65 $2.55
Minimum Cost-sharing for Other Drugs in the Catastrophic Phase $6.60 $6.35
Retiree Drug Subsidy (RDS)    
Cost Threshold (Amount RDS sponsor must spend before claiming the RDS subsidy) $325 $310
Cost Limit (Amount after which RDS sponsor claims no RDS subsidy) $6,600 $6,350

(Note: The changes from 2013 to 2014 are rounded to the closest appropriate level.)

The Advance Notice and draft Call Letter may be viewed using the following link: then click on Announcements and Documents for access to the 2014 files. Comments on the proposed Advance Notice and draft Call Letter are invited from the industry and other stakeholders and must be submitted by March 1, 2013. The final 2014 Rate Announcement and Call Letter including the final MA and FFS growth percentage and final benchmarks will be published on Monday, April 1, 2013.

The proposed rule outlining Medical Loss Ratio requirements for MA and Part D plans may be viewed using the following link:

For updated information about the Medical Loss Ratio provision for the private health insurance market under the Affordable Care Act, please view a report also released today and available at:

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