How MA Benchmarks are calculated (a simplified explanation)

Medicare Advantage benchmark calculations appear complicated, but if you break them down step-by-step, it makes more sense. So, how are MA benchmarks calculated?

Before I get to that question, let me put it in context. The ultimate amount each Medicare Advantage plan is paid to manage their patients each year is based on a handful of factors. These include government benchmarks (projected costs for a senior at the county level), individual plan bids, quality incentives and risk adjustment factors (RAF). CMS just came out with the final rule for the 2025 contract year last month which dictates changes in the program (such as changes in broker payments, sharing of beneficiary data, access to behavioral health care providers, supplemental benefits and other factors impacting what services plans need to provide as well as how their payments will be calculated), so now is the time when health plans are working on their bids for next year. The deadline for these submissions is the first Monday of June each year (so June 3rd coming up).

Basically, the plan is making a bid (proposal) for how much money they need to cover the costs of managing the average beneficiary. They submit these bids in relation to what Medicare says it costs to care for the average beneficiary in that county. These Medicare estimates are called “the benchmark.” Each bid is comprised of 3 cost components: 1) original Medicare part A and B benefits, 2) prescription drugs under Part D (if offered under the plan) and 3) mandatory supplemental benefits. These bids also must include enrollee cost sharing amounts.

So, how does CMS come up with this benchmarK? Every year, by statute, CMS takes the most recent data they have available to project the national fee-for-service spending per beneficiary for the next calendar year. This is called the FFS United States Per Capita Cost (USPCC). They then multiply this amount by a county-level geographic index which is known as the average geographic adjustment (AGA) (they like their acronyms in healthcare). That county adjustment is not fixed. It is based on a five-year average of FFS spending in that county, weighted by local risk scores. They update that number at least every 3 years. This process is called rebasing and is included in the final rule. This year it was a 0.07% year-over-year increase.

There’s one additional adjustment made. The county-level FFS per capita payment number is then multiplied by a percentage ranging from 95% to 115% to account for historical Medicare spending levels in that area. If the county has historically low FFS spending, they are adjusted up by 15% and if the county level spending has been high, they are adjusted down by 5%.

I’ll leave a link below if you want to download the data, but the highest county for 2025 is North Slope, Alaska, at $2,307.40 and the lowest is Hatillo, Puerto Rico, at $603.47. (Puerto Rico is a special case that demonstrates the problems with this calculation because 93% of their seniors are in an MA plan, so the benchmark is based on the spending of just the 7% of seniors in traditional Medicare). If we focus solely on states and ignore territories (e.g. Guam, Virgin Islands, PR), the county with the lowest benchmark rate is Presidio, Texas, at $880.60. Still, that’s quite a range from $10,567.20 for the average senior living in Presidio up to $27,688.80 a year for a senior living in North Slope.

As mentioned above, the plans now have the benchmark data, so they are in the process of calculating and then submitting their bids to CMS on how much money they want (need?) to cover the per-beneficiary cost in each county they serve. Given all of the talk about how MA plans are overpaid compared to FFS Traditional Medicare, you may be surprised to hear that in 2022, MedPAC noted that 92% of the MA plan bids came in below the county benchmark. Obviously, then, the story doesn’t stop there, but I’m going to leave that for a future post.

Click here for the full text final rule plan year 2025

Here is the Medicare Advantage Application document for health plans

You can find the 2025 Medicare Advantage ratebook data here