As expected, Medicare Advantage (MA) plans will see a 3.70 percent average increase in revenue, or over $16 billion, from 2024 to 2025.
The Centers for Medicare & Medicaid Services (CMS) on Monday made final payment policy changes for MA and Medicare Part D Prescription Drug (Part D) drug programs in 2025.
The agency finalized the payments it proposed in January, increasing payments to MA plans by 3.70 percent, or over $16 billion, from 2024 to 2025. In total, the federal government expects to pay between $500 and $600 billion in MA payments to private health plans in 2025.
CMS said in a fact sheet and frequently asked questions document that the expected increase considers elements that impact payment, such as growth rates of underlying costs, 2024 Star ratings for 2025 quality bonus payments, continued phase-in of risk adjustment model updates that were implemented in 2025, and increases to risk scores because of MA risk score trend, which can be driven by MA demographics and coding patterns. The agency noted that the increase is an average expected payment update across plans and therefore, there will be variation of plan-specific payments. Some plans may see a larger or smaller impact year over year.
RELATED: CMS releases the Medicare Advantage and Part D Advance Notice: Proposed changes for 2025
The annual rate announcement finalizes updates to MA payment growth rates and changes to the MA and Part D payment methodologies to improve payment accuracy. CMS said the finalized changes will ensure stable premiums, benefits, and plan options for individuals in 2025. Last year, the first year of the updated model implementation, average premiums and benefits for MA remained stable and plan choice and average supplemental benefits offerings across plans increased.
In addition, CMS also finalized improvements to the Part D drug benefit for 2025, limiting out-of-pocket costs for prescription drugs for seniors to no more than $2,000.
“We are also pleased to finalize guidance on the new $2,000 out-of-pocket cap for prescription drugs under Medicare Part D in 2025, which was enacted in the President’s prescription drug law. This new provision will provide meaningful additional cost savings and relief to enrollees who have been facing high and rising drug costs,” said CMS Deputy Administrator and Director of the Center for Medicare Meena Seshamani, M.D, Ph.D., in the announcement.
NET PAYMENT IMPACT
In the fact sheet, CMS said it expects:
- Medicare costs to grow by 2.33 percent in 2025
- MA plans will see a 3.70 percent change in revenue
- The average increase in risk scores will be 3.86 percent (the figure doesn't account for normalization and MA coding adjustments)
PART C RISK ADJUSTMENT
In 2025, CMS will continue to phase in the updated risk adjustment model (the 2024 CMS-HCC model) as proposed by blending 67 percent of the risk score calculated using the updated 2024 MA risk adjustment model with 33 percent of the risk score calculated using the 2020 MA risk adjustment model.
CMS said it also plans to adopt a more sophisticated methodology for how it normalizes risk scores to more accurately address the impacts of the COVID-19 pandemic without excluding data years. The purpose of fee-for-service (FFS) normalization is to account for trends in the FFS risk scores between the last time the model was recalibrated with new FFS data and the MA payment year.
PART D RISK ADJUSTMENT
Updates to the Part D risk adjustment model reflect the redesign of Part D as required by the Inflation Reduction Act (IRA), including the $2,000 cap on annual out-of-pocket spending and the new Manufacturer Discount Program. CMS also will calibrate the model using newer data years and updating the normalization methodology to reflect differences between Medicare Advantage prescription drug (MA-PD) plan and stand-alone prescription drug plan (PDP) risk score trends that will improve payment accuracy.
PART C AND D STAR RATINGS
Star ratings updates finalized in the rate announcement include the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D Improvement measures and Categorical Adjustment Index for the 2025 Star Ratings.