Payers up against slight decline in 2025 Medicare Advantage payments

Medicare Advantage (MA) payments are set to decrease yet again in 2025 as the feds phase in significant changes to risk adjustment.

As those overhauls begin to take effect, benchmark payments are set to decline by about 0.2% on average, according to the latest advance notice released by the Centers for Medicare & Medicaid Services (CMS).

Despite this, the feds said Wednesday that payments to MA plans are expected to increase by 3.7% in 2025, a $16 billion increase over 2024. The payment rate announced today could change by the time the final rate announcement is published, no later than April 1.

When asked if health plans will upcode members so much that such an increase is needed, Meena Seshamani, M.D., Ph.D., deputy CMS administrator and director of the Center for Medicare, said during a news briefing the agency is following guidance and analysis conducted by its actuaries based on past risk score trends.

CMS said it expects premiums and benefits to remain stable should the payment rate be established. It also wants to continue the phased-in approach of the Part C risk adjustment model by blending 67% of the risk score using the new model and 33% calculated with the old model.

The coding intensity adjustment will stay at the statutory minimum of 5.9%, with CMS opting against raising the rate.

Addressing concerns that the risk adjustment model changes could hurt dually eligible enrollees, special needs plans (SNPs) enrollees and vulnerable populations, CMS decided the new model is "necessary and appropriate and increases predictive accuracy … for these individuals." The agency found that these individuals' risk scores are 4.33 percentage points higher than for non-dually eligible individuals.

"On average, this growth in MA risk scores will more than offset the impact of the new risk adjustment model and normalization for dually eligible individuals," CMS said.

Seshamani said the agency is confident in its recent regulatory policies, based on data from the first year implementing the updated model.

"These data from 2024 clearly showed, despite strong industry pushback to the contrary, as expected, the MA market remained stable for beneficiaries in 2024, including stable premiums, increased choice and increased rebate dollars, which are used for supplemental benefits," said Seshamani. She explained the updated risk adjustment model benefited, not hurt, individuals on SNPs, noting there was an increase in supplemental benefits and SNP plans project enrollment to grow 13% this year, outpacing MA and traditional Medicare growth levels.

"This indicates MA remains a strong and stable market for eligible beneficiaries," she added.

While the MA programs continues to grow as more individuals become eligible for the program, insurers are finding the segment to be less profitable than before. Additionally, both UnitedHealthcare and Humana reported increased utilization levels in recent earnings calls, while Cigna sold its MA and Part D business to Health Care Service Corporation in a $3.7 billion deal, finally separating itself from a business it wanted to sell for several months.

Part D benefits could also change for 2025 because of amendments from the Inflation Reduction Act that increases plan liability. Updates, which fall under the CY 2025 Part D Redesign Program released by CMS today, include lowering the out-of-pocket cap to $2,000 and removing cost sharing for certain adult vaccines and enrollees that fall within a catastrophic range as well as limiting cost sharing for insulin products. The new regulations also implement the Manufacturer Discount Program and sunsets the Coverage Gap Discount Program, as the agency explained last fall.

"The purpose of the document is to provide interested parties with draft guidance for 2025 on changes that affect the structure of the defined standard Part D drug benefit," Seshamani said. "The changes outlined in this guidance will provide needed financial relief to millions of Medicare beneficiaries."

The public comment period will be open for the Part D Redesign Program and Advance Notice through March 1.

A closer look at MA payment rates

Last year, CMS initially proposed to increase MA and Part D plan payments by 1.03% for 2024, when factoring in its MA risk score trend statistic. The agency estimated a 3.12% decline in payments after accounting for changes to the risk adjustment model, such as transitioning to the ICD-10 diagnosis classification system. That coincided with a 1.24% decline in payments based on 2023 star ratings.

But CMS ultimately decided to raise MA payments by 3.32% after insurers heaped pressure on policymakers warning the 1.03% payments would cause them to cut plans. Insurers said CMS wasn't accounting for changes to the risk adjustment model or star ratings effectively. CMS also decided to phase risk adjustment model changes in over three years instead of transitioning entirely in 2024.

During last year's fight over plan payments, insurers said the policy would hurt their bottom line and the beneficiaries they serve, but advocacy groups and the Biden administration framed the issue as reining in overpayments to MA plans by preventing unnecessary overcoding that burdens the system.

At a recent MedPAC meeting, staff revealed data showing overpayments by the federal government are projected to cost it $88 billion more than it would be if those individuals were in fee-for-service Medicare, the largest disparity to date.

Debate has amplified in recent months as policymakers and expert determine what reform is needed to improve upon the weaknesses of MA.

Proponents of MA plans draw from bipartisan support. They say the plans are popular and can offer robust benefits, a cap on out-of-pocket expenses and savings on premiums and cost-sharing for a diverse population of beneficiaries, though they often concede the plan is flawed and could use serious reform.

Last week, 61 senators signed a letter to CMS (PDF) asking the agency to "ensure payment and policy stability for the MA program."

Critics say MA plans can effectively trap individuals in plans that have limited provider networks as well as put them at mercy of a convoluted prior authorization process. CMS finalized a rule earlier this month hoping to crack down on patient wait times, though some advocacy groups say even those new limitations won't go far enough.

CMS urges policy watchers to look at regulatory announcements in the context of other recent actions, including its work to stop predatory MA marketing practices, promote behavioral care, foster health equity initiatives and improve transparency.