CMS Proposes 3.7% Increase in Medicare Advantage Plan Payments

Medicare Advantage plan payments will increase by 3.7 percent or $16 billion in 2025, CMS proposed in the Calendar Year (CY) 2025 Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug Programs.

The proposed payment increase reflects a 2.44 percent effective growth rate, a 0.15 decrease in star ratings from the upcoming changes in the Quality Bonus Payments, a 2.45 percent decrease for risk model revision and fee-for-service (FFS) normalization, and a 3.86 percent increase for the Medicare Advantage risk score trend.

The effective growth rate reflects the current estimate of the growth in benchmarks used to determine payments for Medicare Advantage plans, mainly driven by the increase in Medicare FFS per capita costs, according to a fact sheet.

The 2025 growth rate includes a technical adjustment to the per capita cost calculations related to indirect and direct medical education costs associated with services provided to Medicare Advantage beneficiaries. CMS proposed continuing the three-year phase-in of the technical adjustment, applying 67 percent of it in CY 2025.

Additionally, CMS will continue phasing in the updated Part C Risk Adjustment Model finalized in the CY 2024 Rate Announcement. The agency will blend 67 percent of the risk score calculated using the updated risk adjustment model with 33 percent of the risk score calculated using the 2020 risk adjustment model. The agency may also use a more sophisticated calculation methodology for the FFS normalization factor to address the impacts of the COVID-19 pandemic without deleting data years.

Part D benefit updates made under the Inflation Reduction Act will be in place for CY 2025. These include eliminating the coverage gap phase and capping out-of-pocket costs at $2,000.

The Advance Notice includes Part D risk adjustment model updates to reflect the new Part D benefit design. CMS proposed an increase in plan liability, a new manufacturer discount program, and calibrating the model using new data years. Additionally, the agency included updates to the normalization methodology to reflect differences between Medicare Advantage-prescription drug plan and standalone prescription drug plan risk score trends.

The proposal includes changes to Part C and Part D Star Ratings, including providing 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.

The comment period for the Advance Notice is open until March 1, 2024. After considering the feedback, CMS will issue the CY 2024 Rate Announcement by April 1, 2024.