CMS 2025 Medicare Advantage and Part D Rate Announcement

Key Changes in the CY 2025 Rate Announcement

The CY 2025 Rate Announcement includes the following key points:

• CMS has announced an average increase of 3.70 percent in government payments to Medicare Advantage plans for CY 2025.
• This increase amounts to an additional $16 billion compared to the previous year’s budget.
• The increase in payments demonstrates a commitment to health equity and affordability in Medicare.
• The additional funding encourages plans to enhance their services and care delivery.

Medicare Advantage Payments

With factors such as underlying cost growth rates and quality bonus payments based on 2024 star ratings in play, Medicare Advantage plan payments are poised for an upward trajectory. The Inflation Reduction Act has driven policy updates that, along with adjustments in the risk adjustment model, contribute to a 3.70 percent average increase in payments to Medicare Advantage plans.

While this growth will inject an estimated $16 billion in additional funding from 2024 to 2025, benchmark rates for Medicare Advantage plans will experience a minor reduction of 0.16% in 2025.

Medicare Part D Payment Policies

CMS is finalizing improvements to the Medicare Part D drug benefit, a move that will significantly decrease drug expenses for numerous Medicare beneficiaries.

The key improvements include revisions to benefit parameters and the incorporation of a new $2,000 limit on annual out-of-pocket costs, thanks to the revised Part D risk adjustment model reflecting changes mandated by the Inflation Reduction Act.

Risk Adjustment Model Updates

The Risk Adjustment Model undergoes crucial updates as part of the CY 2025 Rate Announcement, which also reflects the MA(Medicare Advantage) risk score trend and risk score trends. These updates encompass:

• Phasing in of the updated Medicare Advantage risk adjustment model
• 67% of the risk score was calculated using the updated 2024 model
• Blending with 33% using the 2020 model.

The updates also reflect the following changes:

• Part D benefit redesign mandated by the Inflation Reduction Act
• Increased plan liability following the new annual out-of-pocket spending cap
• Establishment of a Manufacturer Discount Program.

Impact of the Inflation Reduction Act on Medicare Programs

The Inflation Reduction Act has brought significant changes to Medicare programs, including:

• Phasing in updated risk adjustment models for Part C and Part D
• Enhancing predictive accuracy
• Accommodating changes such as the Part D benefit redesign.

The Act also introduces a reduction in the coinsurance amount for specific Part B prescription drugs, which takes effect on a quarterly basis.

Payment Accuracy Improvements

The Inflation Reduction Act implements mechanisms to improve payment accuracy, such as mandating that pharmaceutical companies pay rebates to Medicare if they raise drug prices faster than inflation. Furthermore, Medicare is now empowered to negotiate directly with drug manufacturers for lower prices on certain Part B and Part D drugs, bringing a positive impact on payment accuracy.

Technical Adjustments

A key technical adjustment introduced by the Inflation Reduction Act is a cap on Medicare Part D prescription out-of-pocket costs, which will be approximately $3,300 starting in 2024.

Coverage Gap and Out-of-Pocket Costs

The changes in out-of-pocket costs and the cover

age gap phase, also known as the ‘donut hole,’ are set to bring considerable relief to Medicare beneficiaries. Starting in 2025, a cap on annual out-of-pocket costs at $2,000 will be implemented for individuals with Medicare Part D, leading to a significant reduction in prescription drug expenses.

Additionally, the changes to Medicare Part D in 2025 include:

• The elimination of the coverage gap phase
• A transition to a simplified three-phase benefit structure (deductible, initial coverage, and catastrophic phases)
• The establishment of a new Manufacturer Discount Program.

Changes to the Coverage Gap Phase

The elimination of the coverage gap phase, referred to as the ‘donut hole,’ from the Part D benefit structure starting in 2025 marks a significant change. This restructure introduces a cap on out-of-pocket costs for beneficiaries, limiting their annual expenses to $2,000.

Furthermore, beneficiaries will experience uniform treatment of manufacturer discounts for brand and generic drugs and significant financial relief for insulin-dependent individuals with the cap on cost sharing for covered insulin products at $35 per month.

Initial Coverage and Cost Sharing

The cap on annual out-of-pocket costs for Medicare beneficiaries brings a significant update to Medicare Part D. Once a beneficiary spends $2,000 in combined deductible and initial coverage phases in 2025, they will not be responsible for any out-of-pocket prescription drug costs for the remainder of that year. This cap will be subject to adjustments based on inflation in subsequent years, ensuring economic relevance over time.

Furthermore, to aid with budgeting, Medicare Part D plans, which are a part of prescription drug programs, will provide the option for enrollees to pay their out-of-pocket prescription costs in monthly installments, also known as MA plan payments, starting from January 1, 2025.

Implications for Private Health Plans and Supplemental Benefits

The changes brought about by the CY 2025 Rate Announcement and the Inflation Reduction Act have significant implications for private health plans and supplemental benefits.

Medicare Advantage plans in 2025 will need to implement outreach efforts to ensure enrollees are informed about their supplemental benefits , which will influence their marketing strategies.

Effects on MA Plans and Part D Programs

Private health plans offering Medicare Advantage are projected to receive between $500 and $600 billion in payments from the federal government in 2025. Furthermore, the final rule for 2025 includes a new provision that sets a fixed compensation amount for agents and brokers, potentially impacting the way Medicare Advantage and Part D plans manage their marketing and enrollment strategies.

Supplemental Benefits and Cost Sharing

With the new changes, Medicare Advantage plans will have to inform enrollees about unused supplemental benefits with advance notice through a ‘Mid-Year Enrollee Notification of Unused Supplemental Benefits’ and provide evidence that Special Supplemental Benefits for the Chronically Ill (SSBCI) can reasonably be expected to improve health.

Moreover, to promote health equity, Medicare Advantage organizations will need to perform an annual analysis of utilization management policies, which could lead to changes in cost-sharing practices for both Medicare Advantage and Medicaid services.

Star Ratings and Quality Improvement Measures

The Star Rating system, a key measure of Medicare plan performance, has seen updates in the 2025 rate announcement. The modifications include new measures and benchmarks, further incentivizing plans to aim for the highest possible performance.

Alongside this, the announcement introduced new quality improvement measures to drive better health outcomes, including enhancements to care coordination and patient safety, with a strong emphasis on value-based care.

Changes to the Star Rating System

The 2025 Star Ratings will incorporate updates to the list of eligible disasters for adjustment, allowing for more nuanced assessments of plan performances during adverse conditions. Additionally, CMS has finalized non-substantive measure specification updates to refine the evaluation of plan quality and risk scores.

Revisions have also been made to the measures included in the Part C and D Improvement measures and Categorical Adjustment Index, impacting the overall calculation of Star Ratings.

Quality Improvement Measures

CMS has updated the Part C and D Star Ratings, influencing the 2025 quality bonus payments based on previous years’ performance. It has finalized the list of eligible disasters for adjustments in the 2025 star ratings.

Additionally, CMS has established non-substantive measure specification updates for the 2025 Star Ratings.

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