Hierarchical Condition Categories: What Medicare Advantage Beneficiaries Need to Know

Hierarchical condition categories (HCC) are the groups of diagnoses you have that directly impact how much it costs your Medicare Advantage plan to take care of you. By addressing HCCs, you can help move the needle on rising healthcare costs.

If you live in New England, you budget more money for heat in the winter months. In the summer, it’s all about the electric bill for air conditioning. The specific dollar amount you use in your budget is based on a variety of factors: Previous utility bills, the size of your house, how often you’re home, preferred temperature, etc. Budgets may change from year to year based on your needs.

It can be like that with Medicare Advantage plans, too. Your Medicare Advantage (Medicare Part C) plan budgets for how much it anticipates it will cost to take care of you each year, predicting your healthcare expenses based on your current diagnoses and various demographic details.

This fixed amount – known as a risk-adjusted payment – is what the federal Medicare program pays your Medicare Advantage plan carrier, regardless of how much your plan actually spends.

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What is an HCC?

Hierarchical condition categories (HCC) are designated groups of diagnoses that directly impact how much it may cost an insurance plan provider to pay for your covered care.

From your Medicare plan carrier’s perspective, not all of your diagnoses increase your overall health risk and expected care costs. For example, acute illnesses and injuries don’t affect ongoing health costs. Those that do increase your risk and the expected cost to maintain your health  are usually chronic conditions. These diagnoses are grouped into hierarchical condition categories.

Some examples of HCCs include asthma, diabetes, congestive heart failure, breast cancer, rheumatoid arthritis and specified heart arrhythmias.

HCCs are driven by the medical codes your physician assigns. This means it’s important for them to capture everything through their documentation and the coded data they submit on any medical claims. These codes paint a picture of your severity and risk of mortality.

Why do Medicare Advantage plans use HCCs?

Without HCCs, Medicare Advantage plans would receive a fixed payment rate that doesn’t take each beneficiary’s unique risks into account. This would incentivize plans to avoid the sickest, most expensive patients.

As a result of using HCCs, Medicare Advantage plans are paid using a risk-adjusted payment model that reimburses Medicare Advantage plans based on the actual costs of care for each individual beneficiary rather than an average per-capita payment for everyone.

Why are HCCs important?

As stated above, Medicare Advantage plans have a set amount of Medicare funding each year to cover all of your healthcare expenses. To keep costs down, some of these plans may also have special rules and requirements, such as requiring you to get care from network providers or to get prior authorization for any expensive tests and procedures.

In return, many Medicare Advantage plan beneficiaries pay lower out-of-pocket costs than they might if they were only enrolled in Original Medicare (Medicare Part A and Part B). With Medicare Advantage plans, there are also annual limits on what you need to pay out-of-pocket before the plan covers all of your covered health care costs.

Failure to capture some or all of your HCCs could mean that your Medicare Advantage plan receives thousands of dollars less than it may cost them to take care of you. This can affect your plan’s ability to remain profitable and continue to offer affordable benefits.

When and how do physicians capture HCCs?

Physicians capture HCCs in your medical record every time they see you and particularly during your annual wellness exam — a time when they usually focus on preventive health. Specifically, they document each diagnosis as well as what they are doing to monitor, evaluate, assess and treat it.

What else do I need to know about HCCs?

It all comes down to what your doctor writes in your medical record and what diagnosis codes they report on your insurance claim. The most important thing you can do is see your doctor at least once a year for your annual wellness visit. If you go for years without seeing the doctor, they won’t have an opportunity to evaluate you and make sure the data they report is accurate.

Another thing you can do is answer all of your physician’s questions with as much detail as possible so they can paint an accurate picture of your health through their documentation and coded data.

Finally, you can follow through with treatment recommendations, such as taking medications as prescribed or enrolling in chronic care management programs. By taking these and other important steps, you can potentially avoid costly emergency department visits and hospitalizations that drive up the cost of your care.

Call to speak with a licensed insurance agent who can help you learn more about Medicare Advantage plan coverage and costs, and get help comparing plans that are available where you live.

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About the author

Lisa Eramo is an independent health care writer whose work appears in the Journal of the American Health Information Management Association, Healthcare Financial Management Association, For The Record Magazine, Medical Economics, Medscape and more.

Lisa studied creative writing at Hamilton College and obtained a master’s degree in journalism from Northeastern University. She is a member of the American Health Information Management Association, American Academy of Professional Coders, Society of Professional Journalists, Association of Health Care Journalists and the American Society of Journalists and Authors.

Lisa currently resides in Cranston, Rhode Island with her wife and two-year-old twin boys.



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