Common use of Risk corridors Clause in Contracts

Risk corridors. New Section 1860D-15 of the conference agreement provides for the establishment of risk corridors, which are defined as specified percentages above and below a target amount. The target amount is defined as total payments paid to the plan, taking into account the amount paid by the Secretary and enrollees, based on the standardized bid amount, risk adjusted, and reduced by total administrative expenses assumed in the bid. No payment adjustments will be made if adjusted allowable costs for the plan are at least equal to the first threshold lower limit of the first risk corridor but not greater than the first threshold upper limit of the risk corridor for the year, i.e. if the plans are within the first risk corridor. A portion of any plan spending above or below these levels is subject to risk adjustment. If adjusted allowable costs exceed the first threshold upper limit, then payments are increased. If adjusted allowable costs are below the first threshold lower limit, then payments are reduced. Adjusted allowable costs are reduced by reinsurance and subsidy payments. Payment adjustments would not affect beneficiary premiums. During 2006 and 2007, plans would be at full risk for adjusted allowable risk corridor costs within 2.5% above or below the target. Plans with adjusted allowable costs above this level would receive increased payments. If their costs were between 2.5% of the target (first threshold upper limit) and 5% of the target (second threshold upper limit), they would be at risk for 25% of the increased amount; that is their payments would equal 75% of adjusted allowable costs for spending in this range. If their costs were above 5% of the target they would be at risk for 25% of the costs between the first and second threshold upper limits and 20% of the costs above that amount. That is their payments would equal 80% of the adjusted allowable costs over the second threshold upper limit. Conversely, if plans fell below the target, they would share the savings with the government. They would have to refund 75% of the savings if costs fell between 2.5% and 5% below the target level, and 80% of any amounts below 5% of the target. A higher risk sharing percentage would apply in 2006 and 2007 if the Secretary determines that 60 percent of prescription drug plans and MA-PD plans, representing at least 60 percent of beneficiaries enrolled in such plans have adjusted allowable costs that are more than the first threshold upper limit. In this case, payment to plans would equal 90 percent of adjusted allowable costs between the first and second upper threshold limits. For 2008-2011, the risk corridors would be modified. Plans would be at full risk for drug spending within 5% above or below the target level. Plans would be at risk for 50% of spending exceeding 5% and below 10% of the target level. Additionally, they would be at risk for 20% of any spending exceeding 10% of the target level. Payments would be increased by 50% of adjusted allowable costs exceeding the first threshold upper limit and 80% for any costs exceeding the second threshold upper limit. Conversely, if plans fell below the target, they would share the savings with the government. They would have to refund 50% of the savings if costs fell between 5% and 10% below the target level, and 80% of any amounts below 10% of the target. For years after 2011, the Administrator would establish risk corridors. The first threshold risk percentage could not be less than 5% and the second threshold risk percentage could not be less than 10% of the target amount. Conferees intend the risk corridors to create incentives for plans to enter the market. If allowable risk corridor costs are less than the first threshold lower limit, but not greater than the first threshold upper limit for the plan year, then no payment adjustment is made. Plans are at full financial risk for all spending for supplemental prescription drug coverage. The subsidy and risk corridor provisions would not apply to fallback plans. Medicare Prescription Drug Account in the Federal Supplementary Insurance Trust Fund (New Section 1860D-16 of conference Agreement; New Section 1860D-9 of House Bill; New Section 1860D-25 of Senate Bill). Present Law Medicare Part B is financed by a combination of enrollee premiums and federal general revenues. Income from these sources is credited to the Federal Supplementary Insurance Trust fund. Payments are made from the Trust Fund for Part B benefits. House Bill New Section 1860D-9 would create a Medicare Prescription Drug Trust Fund. Requirements applicable to the Part B trust fund would apply in the same manner to the Drug Trust Fund as they apply to the Part B Trust Fund. The Managing Trustee would pay from the Fund, from time to time, low-income subsidy payments, subsidy payments, and payments for administrative expenses. The Managing Trustee would transfer, from time to time, to the Medicaid account amounts attributable to allowable increases in administrative costs associated with identifying and qualifying beneficiaries eligible for low-income subsidies. Amounts deposited into the Trust Fund would include the federal amount which would otherwise be payable by Medicaid except for the fact that Medicaid becomes the secondary payer of drug benefits for the dual eligibles. The provision would authorize appropriations to the Trust Fund an amount equal to the amount of payments from the Trust Fund reduced by the amount transferred to the Trust Fund. The provision would specify that any provision of law relating to the solvency of the trust fund would take into account the Fund and the amounts received by, or payable from, the Fund. Senate Bill A separate account, known as the Prescription Drug Account, would be established within the Part B Trust Fund. Funds in this Account would be kept separate from other funds within the Trust Fund. Payments would be made from the Account to eligible entities and Medicare Advantage plans and for low-income subsidies, reinsurance payments, and administrative expenses. Appropriations would be made to the Account equal to the amount of payments and transfers made from the Account.

Risk corridors. New Section 1860D-15 section 1860D-16 would require entities to notify the Administrator for each year (beginning in 2007) of the conference agreement provides total actual costs the entity incurred in providing standard coverage in the preceding year. Total actual costs would reflect total payments made to pharmacies and other entities for coverage and the establishment aggregate amount of discounts, direct or indirect subsidies, rebates, or other price concessions or direct or indirect remunerations made to the entity. The notification would not include spending for administrative costs, amounts spent for coverage in excess of standard coverage, or amounts for which the entity subsequently received reinsurance payments. The provision would establish risk corridors, which are would be defined as specified percentages above and below a target amount. The target amount is would be defined as the total payments paid to of plan premiums minus a percentage (negotiated between the plan, taking into account Administrator and the amount paid by the Secretary and enrollees, based on the standardized bid amount, risk adjusted, and reduced by total entity) for administrative expenses assumed in the bidcosts. No payment adjustments will adjustment would be made if adjusted allowable costs for the plan are at least equal to the first threshold lower limit of the first risk corridor but were not greater more than the first threshold upper limit of or less than the risk corridor first threshold lower limit for the year, i.e. if the plans are were within the first risk corridor. A portion of any plan spending above or below these levels is would be subject to risk adjustmentadjustments. If adjusted allowable costs exceed exceeded the first threshold upper limit, then payments are would be increased. If adjusted allowable costs are were below the first threshold lower limit, then payments are would be reduced. Adjusted allowable costs are reduced by reinsurance and subsidy payments. Payment adjustments would not affect beneficiary premiums. During 2006 and 2007, plans would be at full risk for adjusted allowable risk corridor costs drug spending within 2.5% above or below the target. Plans with adjusted allowable costs above this level would receive increased payments. If their costs were between be at risk for 25% of spending exceeding 2.5% of the target (first threshold upper limit) and below 5% of the target (second threshold upper limit), they would be at risk for 25% of the increased amount; that . That is their payments would equal 75% of adjusted the allowable costs for spending in this range. If their costs were above 5% of the target they They would be at risk for 2510% of the costs between the first and second threshold upper limits and 20spending exceeding 5% of the costs above that amounttarget. That is their payments would equal 8090% of the adjusted allowable costs over the second threshold upper limitfor spending in this range. Conversely, if plans fell below the target, they would share the savings with the government. They would have to refund 75% of the savings if costs fell between 2.5% and 5% below the target level, and 8090% of any amounts below 5% of the target. A higher risk sharing percentage special transition corridor would apply be established in 2006 and 2007 the first two years. The Administrator would make a payment adjustment if the Secretary determines Administrator determined that 60 percent 60% or more of prescription drug all participating plans and MA-PD (including Medicare Advantage plans, ) representing at least 60 percent 60% of covered beneficiaries enrolled in such plans have adjusted had allowable costs that are were more than 2.5% above the first threshold upper limittarget. In this case, payment to plans Risk corridor payments would equal 90 percent 90% of adjusted allowable costs between any spending greater than 2.5% of the first and second upper threshold limitstarget but below 5% of the target. For 2008-2011, the risk corridors would be modified. Plans would be at full risk for drug spending within 55.0% above or below the target level. Plans would be at risk for 50% of spending exceeding 55.0% and below 1010.0% of the target level. Additionally, they They would be at risk for 2010% of any the spending exceeding 10% of the target level. Payments would be increased by 50% of adjusted allowable costs exceeding the first threshold upper limit and 8090% for any costs exceeding the second threshold upper limit. Conversely, if plans fell below the target, they would share the savings with the government. They would have to refund 50% of the savings if costs fell between 5% and 10% below the target level, and 8090% of any amounts below 1090% of the target. For years after 2011, the Administrator would establish risk corridors. The first threshold risk percentage could not be less than 5% and the second threshold risk percentage could not be less than 10% %. Administrative costs would be not be included in the calculation of whether or nor plan spending fell within a particular risk corridor. Administrative costs would be negotiated separately, on a plan by plan basis, with the Administrator. Administrative costs would be subject to performance risk. For purposes of making risk corridor calculations, allowable costs would be based on actual costs reported by the plan. The Administrator could require disclosure of any data as needed to administer the benefit. The Administrator would have the right to inspect and audit any books and records of the target amountentity pertaining to amounts reported for drug spending. Conferees intend Information could be used by officers and employees of the risk corridors to create incentives for plans to enter the market. If allowable risk corridor costs are less than the first threshold lower limitDepartment of Health and Human Services, but not greater than only to the first threshold upper limit for the plan year, then no payment adjustment is made. Plans are at full financial risk for all spending for supplemental prescription drug coverageextent necessary to carry out this section. The subsidy and risk corridor provisions Administrator would not apply be required to fallback plans. Medicare Prescription Drug Account in the Federal Supplementary Insurance Trust Fund (New Section 1860D-16 of conference Agreement; New Section 1860D-9 of House Bill; New Section 1860D-25 of Senate Bill). Present Law Medicare Part B is financed by establish a combination of enrollee premiums and federal general revenues. Income from these sources is credited to the Federal Supplementary Insurance Trust stabilization reserve fund. Payments are made from the Trust Fund for Part B benefits. House Bill New Section 1860D-9 would create a Medicare Prescription Drug Trust Fund. Requirements applicable to the Part B trust fund would apply in the same manner to the Drug Trust Fund as they apply to the Part B Trust Fund. The Managing Trustee would pay from the Fund, from time to time, low-income subsidy payments, subsidy payments, and payments for administrative expenses. The Managing Trustee would transfer, from time to time, to the Medicaid account amounts attributable to allowable increases in administrative costs associated with identifying and qualifying beneficiaries eligible for low-income subsidies. Amounts deposited into the Trust Fund would include the federal amount which would otherwise be payable by Medicaid except for the fact that Medicaid becomes the secondary payer of drug benefits for the dual eligibles. The provision would authorize appropriations to the Trust Fund an amount equal to the amount of payments from the Trust Fund reduced by the amount transferred to the Trust Fund. The provision would specify that any provision of law relating to the solvency of the trust fund would take into account the Fund and the amounts received by, or payable from, the Fund. Senate Bill A separate account, known as within the Prescription Drug Account, would be established within the Part B Trust Fund. Funds Amounts in this Account would be kept separate from other funds within the Trust Fund. Payments fund would be made from the Account available to eligible entities and Medicare Advantage plans and for low-income subsidies, reinsurance payments, and administrative expensesbeginning with their 2008 contract year. Appropriations Payments to the fund would be made to determined as follows. If the Account equal to target amount for a plan for any year 2006 - 2010 exceeded applicable costs by more than 3% for the year, the entity would pay the Administrator the amount of such excess; the Administrator would deposit such amount in the fund on behalf of the entity. Applicable costs would be defined as the sum of allowable costs and the amount by which monthly payments and transfers made from were reduced through application of the risk corridor provisions. At appropriate intervals, the Administrator would notify a participating entity of the balances in any of its stabilization accounts. Beginning in 2008, entities would be permitted to use account funds to stabilize or reduce plan premiums. The accounts would expire after 5 years. Any amounts not used by an eligible entity or that was deposited for use by an entity that no longer had a Part D contract would revert to the use of the Prescription Drug Account.