Overview
Let’s start by explaining the “risk score.” A beneficiary’s risk score reflects his or her predicted Medicare health costs compared to those of an average beneficiary.
The Centers for Medicare & Medicaid Services (CMS) uses claims from the Medicare fee-for-service (FFS) program to calculate risk scores, and then uses these risk scores to estimate payments for Medicare Advantage (MA).
Each year, the average risk score changes due to trends in the health of the Medicare population and differences in how disease are coded. The current CMS risk model, developed based on 2015 FFS data, was designed to generate an average risk score of 1.0 for FFS beneficiaries for 2015. Accordingly, CMS applies a “normalization” factor so that the average expected risk score in the payment year – in this case, 2018 – will also be 1.0.
CMS divides each MA plan’s average risk score by this normalization factor to calculate the final risk score, which determines plan payments. Thus, the higher the normalization factor, the lower the risk score – and the lower the payments to the MA plan.