CMS Pub. 100-16, ch. 1, § 40.1

Medicare cost plans are operated by a legal entity licensed as an HMO in accordance

with a cost reimbursement contract under Section 1876 of the Social Security Act and

Title 42, Part 417 of the Code of Federal Regulations. Medicare payment to the HMO is

based on the reasonable costs of providing services to their enrollees.

Medicare cost plans may enroll both Part A/B as well as Part B only beneficiaries (Section

1876(d) of the Social Security Act). Medicare cost plan enrollees are not restricted to the

HMO network for receipt of covered Medicare services (i.e., covered Part A and Part B

services may be received through non-HMO plan sources and are reimbursed separately

by original Medicare).

Cost plans may offer either Part D or non-qualified prescription drug coverage but may

not offer both (42 CFR 417.440(b)). Plan enrollees not electing Part D coverage from

the plan, either because the plan does not offer it or because they did not elect it, may

enroll in a PDP.

Under Section 1876 (h)(5) of the Social Security Act, no new cost plan contracts are

accepted by CMS. CMS will, however, accept and review applications to modify cost

plan contracts in order to expand service areas (42 CFR 417.402(b)).

Section 1876(h)(5)(C) of the Social Security Act requires that beginning CY 2016,

CMS non- renew cost plans in service areas or portions of service areas in which at least

two competing MA local or two MA regional coordinated care plans that meet specified

enrollment thresholds are available. The Medicare Access and CHIP Reauthorization

Act of 2015 delays non-renewal of plans affected by the cost plan competition

requirements through CY 2018. This means cost plans that would otherwise be non-renewed in all or a portion of a plan’s service area as a result of the cost plan

competition requirements, will be able to continue to offer the plans through contract

year 2018.

For further information on Medicare Cost plans see Chapter 17 of this manual.