Between 2024 and 2025, payments to Medicare Advantage plans are anticipated to increase by an average of 3.70 percent, amounting to over $16 billion in total.
On Jan 31, 2024, the Centers for Medicare & Medicaid Services (CMS) released the Advance Notice outlining proposed payment policies for the Medicare Advantage (MA) and Medicare Part D Prescription Drug programs for the 2025 calendar year. This notice provides an overview of potential changes aimed at refining payment strategies within these healthcare programs for the upcoming year.
The Advance Notice aligns with a proposed regulation introduced by CMS in November. If ratified, it aims to bolster protections for the many seniors reliant on Medicare Advantage (MA) and Medicare Part D prescription drug coverage. This initiative seeks to fortify safeguards within these programs, ensuring the well-being of elderly beneficiaries.
Contextual reference: The 2025 Proposed Rule for Medicare Advantage proposes significant alterations to agent and broker compensation, supplemental benefits, and the RADV appeal procedure.
As per the Advance Notice, there’s an anticipated average increase of 3.70 percent in payments to MA plans, totaling over $16 billion, from 2024 to 2025.
Furthermore, CMS is suggesting enhancements to the Medicare Part D prescription drug benefit, which will lead to reduced drug expenses for millions of Medicare beneficiaries. This proposal coincides with the release of the Draft CY 2025 Part D Redesign Program Instructions. The agency noted that in 2025, as a result of the Inflation Reduction Act (IRA), annual out-of-pocket expenses for individuals with Medicare Part D will be limited to $2,000.
HHS Secretary Xavier Becerra emphasized the necessity for affordable prescription drugs, affirming ongoing efforts to reduce costs, ensuring individuals don’t face the dilemma of prioritizing medication over essential needs. CMS Administrator Chiquita Brooks-LaSure highlighted the significant impact of the out-of-pocket cap, describing it as “truly transformative” for millions of individuals.
YEARLY ADJUSTMENTS TO MEDICARE ADVANTAGE PAYMENT GROWTH RATES.
In the previous year, CMS completed technical and clinical revisions to the MA risk adjustment model, ensuring its relevance and enhancing payment precision. Additionally, updates were made to growth rate calculations to accommodate medical education expenses more accurately.
Contextual reference: CMS issues Medicare Advantage payment policies for the year 2024.
The 2025 Advance Notice encompasses the ongoing implementation of the revised MA risk adjustment model, along with enhancements to growth rate calculations concerning medical education expenses, alongside various technical refinements.
Should these proposed policies outlined in the 2025 Advance Notice be approved, they are anticipated to yield a net increase in MA payments to plans on average ( YoY) year-on-year.
Total payment outcome
In 2025, Medicare expenses are projected to increase by 2.44 percent. Medicare Advantage (MA) plans are expected to undergo a revenue change of 3.70 percent. The average rise in risk scores is anticipated to reach 3.86 percent, noting that this calculation does not include normalization and MA coding adjustments.
PART C RISK ADJUSTMENT MODEL
The previous year, CMS initiated a three-year process to gradually integrate the updated Part C Risk Adjustment Model (CMS-HCC model). CMS intends to persist with this phase-in approach in the upcoming year, combining 67 percent of the risk score calculated using the revised 2024 MA risk adjustment model with 33 percent derived from the 2020 MA risk adjustment model.
CMS is contemplating a refined calculation method for the FFS normalization factor, aiming to better capture the effects of the COVID-19 pandemic without excluding data years. This factor adjusts risk scores calculated using the 2025 payment models to accommodate the projected rise in the average FFS risk score over time.
In 2025, CMS plans to maintain the previously introduced IRA benefits and remove the coverage gap stage, transitioning to a three-phase benefit structure (deductible, initial coverage, and catastrophic). Additionally, CMS aims to cap out-of-pocket expenses at $2,000.
PART D RISK ADJUSTMENT
CMS suggests revisions to the Part D risk adjustment model to align with the redesign of the Part D benefit mandated by the IRA. This includes adjustments to account for the heightened plan liability resulting from the $2,000 cap on annual out-of-pocket expenses and the introduction of the new Manufacturer Discount Program.
CMS emphasized the necessity of the model updates for plan sponsors to formulate precise bids for 2025. Furthermore, the Advance Notice suggests adjusting the model by incorporating more recent data years and proposes updates to the normalization methodology to account for disparities in risk score trends between MA prescription drug (MA-PD) plans and stand-alone prescription drug plans (PDPs).
PART C AND D STAR RATINGS.
CMS suggests revisions to the Star ratings for 2025, encompassing eligible disaster lists for adjustment, updates to non-substantive measure specifications, and including measures in Part C and D Improvement measures and Categorical Adjustment Index for the 2025 Star Ratings. Additionally, CMS seeks initial feedback on substantive measure specification updates, invites comments on new measure concepts, and demonstrates progress towards the Universal Foundation, a set of quality measures harmonized across CMS programs.
Feedback on the Advance Notice will be open for submission until Friday, March 1, before the final rate announcement is published on or before April 1.
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