CMS releases proposed payment updates for 2025 Medicare Advantage and Part D programs

The Centers for Medicare & Medicaid Services  has proposed lowering average benchmark payments to Medicare Advantage plans by an average of 0.2% for 2025 as part of its annual advance notice for MA and Part D plans. Despite the cuts, the agency expects MA revenues to rise 3.7% in 2025, up by $16 billion from 2024.

CMS released the Calendar Year 2025 Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug Programs that would update payment policies for these programs. The Advance Notice complements a proposed rule, also for 2025, that CMS released in November 2023 that would, if finalized, strengthen protections for the millions of people who rely on MA and Medicare Part D prescription drug coverage.

Each year, CMS is required to update MA payment rates and regularly conducts technical updates to make improvements needed to keep MA payments up-to-date and accurate. If finalized, the proposed policies in the 2025 Advance Notice are projected to result in a net increase in MA payments to plans on average year-over-year in 2025. CMS also proposed updates, where applicable, to reflect the Part D redesign as required by the Inflation Reduction Act. A fact sheet is available here: 2025 Medicare Advantage and Part D Advance Notice Fact Sheet | CMS

Inflation Reduction Act updates for 2025

The act made several amendments and additions to the standard Part D drug benefit for 2023 and subsequent years. Part D benefit-related updates will be in place for 2025 and include the elimination of the coverage gap phase to affect a three-phase benefit (deductible, initial coverage and catastrophic) and cap out-of-pocket costs at $2,000 for 2025. Other previously implemented benefits will continue, including no cost sharing for enrollees in the catastrophic phase, a $35 monthly cap on enrollee cost sharing for each covered insulin product, and no cost sharing for adult vaccines recommended by the Advisory Committee on Immunization Practices that are covered under Part D.

Part D risk adjustment 

CMS is proposing updates to the Part D risk adjustment model to reflect the redesign of the Part D benefit as required by the Inflation Reduction Act, including the increase in plan liability given the $2,000 cap on annual out-of-pocket spending for 2025, and the new Manufacturer Discount Program. These updates to the Part D risk adjustment model are essential for plan sponsors to develop accurate bids for 2025. In addition, the Advance Notice proposes to calibrate the model using newer data years as well as proposes updates to the normalization methodology to reflect differences between Medicare Advantage prescription drug plan and stand-alone prescription drug plan risk score trends.

The Advance Notice proposes annual updates to MA payment growth rates and changes to the MA and Part D payment methodologies to improve payment accuracy. Last year, CMS finalized CY 2024 technical and clinical updates to the MA risk adjustment model to keep it up-to-date and improve payment accuracy, as well as updates to the calculation of growth rates to better account for medical education costs. For 2024, MA offerings for people with Medicare remained stable—including premiums, supplemental benefits, and choice. The CY 2025 Advance Notice includes the continued phase-in of the updated MA risk adjustment model and updates to the calculation of growth rates related to medical education costs, and other technical improvements.

AHIP president and CEO Mike Tuffin issued the following statement about the proposed rate notice:

“We are carefully reviewing this complex set of proposals which will impact coverage and care for the more than 50 million beneficiaries who rely on Medicare Advantage and Part D.

“We know that in the post-pandemic environment, MA plans are supporting seniors as they access deferred care and resume normal utilization of medical services at a time of rising medical costs. As significant reforms to Part D are implemented and drug costs continue to rise, it is also critical to ensure enrollees continue to have stable access to high-quality, affordable drug coverage.

“Medicare Advantage is the preferred coverage option for more than half of eligible Medicare beneficiaries because it provides them better care at lower costs. In addition, more than 23 million seniors and individuals with disabilities have chosen to enroll in stand-alone Part D plans for affordable access to the prescription drugs they need.”

Meanwhile, America’s Physician Groups president and CEO Susan Dentzer said: “We are still digesting the newly released Advance Notice in detail, but an initial read suggests that CMS is continuing to implement as planned the changes it put in place last year in risk adjustment and other aspects of the Medicare Advantage (MA) program. This continuity of effort suggests that there will be greater stability in the program into 2025 than might have been the case otherwise. APG is grateful for this stability, as it will enable our members’ groups – who care for about 1 in 3 individuals enrolled in MA – to do the best possible job of caring for their patients.

“We also welcome the rules implementing provisions of the Inflation Reduction Act, such as the $35 monthly limit on patient copayments for insulin products and the $2,000 cap on out-of-pocket payments in Part D. These provisions will now be fully incorporated into MA plans that offer Part D benefits. This positive development will make it possible for millions of MA enrollees to have access to medications at reasonable out-of-pocket costs and further enable our APG members to take better care of them.

“We look forward to delving further into the Advance Notice; educating our members about it; and responding with our comments to CMS.”

The Advance Notice and the Draft CY 2025 Part D Redesign Program Instructions are open for public comment, and CMS will accept comments through 6:00 PM Eastern Time on Friday, March 1, 2024. The CY 2025 Rate Announcement and the CY 2025 Part D Redesign Program Instructions will be published no later than April 1, 2024.

The CY 2025 Advance Notice may be viewed by going to: https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents and selecting “2025 Advance Notice.”