Profitability is critical for long-term sustainability in the Medicare Advantage (MA) market and a major consideration for new and established Medicare Advantage organizations (MAOs). While there are many paths to increase profitability, increasing revenue is often a first consideration for MAOs.
MAOs receive funding from the Centers for Medicaid and Medicare Services (CMS), and, in some cases, from their enrolled beneficiaries. Total revenue can be categorized into two groups: Part C and Part D.
Part C revenue from CMS depends on the county benchmark rate, which CMS sets as the maximum funding it will provide to cover traditional fee-for-service Medicare benefits for an average beneficiary. Each year, an MAO estimates a bid amount for each of its plan offerings, indicating the estimated cost to cover its expected population. As for Part D, CMS funds a portion of it through the direct subsidy, calculated as the difference between the national average bid amount and the national average member premium. In addition to the revenue from CMS, MAOs must balance the offered benefits, profitability, and the resulting member premium.
In this paper, Milliman consultants Kelly Backes, Greg Herrle, and Douglas Rodrigues discuss the various components of MA revenue, avenues MAOs may explore to increase their Part C and Part D revenue, and key considerations for each approach.