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The Centers for Medicare & Medicaid Services announced today significant increases in federal payment rates for Medicare Advantage health plans, aimed at supporting improvements in services and lower costs for Medicare beneficiaries enrolled in private health plans, as well as more options for Medicare coverage.

The increased payments to Medicare Advantage, formerly known as Medicare+Choice, will take effect March 1 and were included in the bipartisan Medicare Prescription Drug, Improvement and Modernization Act recently signed into law by President Bush. The increases will average 10.6 percent across plans.

The provision requires managed care organizations to use the funds to:

• Reduce beneficiary premiums or co-pays
• Enhance benefits
• Stabilize or expand the network of doctors and other health care providers available to seniors
• Reserve funds to offset either premium increases or reduced benefits in the future.

"These increases are an investment in our seniors. They are aimed at supporting better services for Medicare beneficiaries in health care plans. And at the same time they will help support more choice of Medicare options for all beneficiaries," HHS Secretary Tommy G. Thompson said. "We want private health plans to develop attractive benefits and strong networks of providers. And we want beneficiaries to have a range of reliable alternatives so they can choose the coverage options that serve them best. This is an important improvement to the Medicare system that addresses a long-standing concern by seniors who prefer managed care plans."

The new provision gives those managed care organizations that announced they were leaving Medicare Advantage (formerly Medicare+Choice) or reducing their services the opportunity to remain in the program, providing continued service for seniors who choose a managed care plan. These organizations must submit new proposals to CMS for review by Jan. 30. Also by that date, all managed care organizations that renewed their contracts with CMS for 2004 are required to revise their Adjusted Community Rate Proposals (ACRP) and submit this information to CMS.

"We expect that these new rates will help beneficiaries by enabling their plans to deliver better benefits, such as enhanced prescription drug coverage, reduced out-of-pocket costs, and more reliable access to the providers in their communities," said Dennis Smith, CMS acting administrator. "They will provide equitable payments to private plans to support better service for Medicare beneficiaries. Over the long term, sharing this investment with the private plans can yield important benefits to beneficiaries and taxpayers."

The new rate is one of many steps being taken rapidly in response to the Medicare Improvement Act. In recent weeks, CMS has also launched its plans to make a drug discount card available to Medicare beneficiaries this spring, and published updated payment rates for physicians and outpatient hospitals.

In the past year, beneficiaries in Medicare+Choice have seen the program stabilize, with fewer plans leaving than in recent years. In addition, many existing plans have expanded their service areas and others are offering new programs. Since Jan. 1, 2003, CMS has approved 12 new Medicare+Choice contracts and the expansion of service areas for 40 plans. As of Jan. 1, 2004, there were 10 new plans and nine service area expansions pending. Currently, 4.6 million of the 41 million Medicare beneficiaries have chosen to enroll in a Medicare Advantage (formerly Medicare+Choice) plan.

"We are encouraged by the number of plans that continue to expand their reach and bring more choices to millions of beneficiaries, and we expect this trend to accelerate with this announcement," Smith said. "These health plans are very important for lower-income seniors, minority seniors and disabled individuals who rely on them for their health care, to keep costs affordable, and for the valuable benefits that are not available in fee-for-service Medicare."

The amount of the increase varies by county. The average increase will be about 10.6 percent for those counties where Medicare Advantage plans are available. That increase includes an average 3.2 percent increase that plans were expected to receive in 2004 before the enactment of the new Medicare law.

Changes in the Medicare Advantage plans' benefits and premiums will be available at www.medicare.gov on March 4 and plan enrollees should receive letters from their plans by March 8.

The new rates can be found at www.cms.hhs.gov/healthplans/rates/.