Proposed payments to Medicare Advantage plans are expected to increase on average by 3.70 percent, or more than $16 billion, from 2024 to 2025

The Centers for Medicare & Medicaid Services (CMS) on Wednesday released the Advance Notice for the Medicare Advantage (MA) and Medicare Part D Prescription Drug programs, proposing payment policies for calendar year 2025.

The Advance Notice complements a proposed rule released in November that CMS said, if finalized, would strengthen protections for millions of seniors who rely on MA and Medicare Part D prescription drug coverage.

RELATED: 2025 Medicare Advantage Proposed Rule calls for major changes to agent and broker pay, supplemental benefits, and the RADV appeal process

According to the Advance Notice, payments to MA plans are expected to increase on average by 3.70 percent, or over $16 billion, from 2024 to 2025.

In addition, CMS also proposes improvements to the Medicare Part D drug benefit that will result in lower drug costs for millions of people with Medicare through the concurrent release of the Draft CY 2025 Part D Redesign Program Instructions. The agency said that in 2025, due to the passage of the Inflation Reduction Act (IRA), annual out-of-pocket costs will be capped at $2,000 for people with Medicare Part D. 

“Prescription drugs should be affordable. Today, we are continuing to take steps to lower prescription drug costs so that no one must choose between feeding their family and taking their medicine,” said HHS Secretary Xavier Becerra in the announcement. CMS Administrator Chiquita Brooks-LaSure said that the out-of-pocket cap will be “truly life-changing” for millions of people.

Annual updates to MA payment growth rates

Last year, CMS finalized 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.

RELATED: CMS releases 2024 MA payment policies

The 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, as well as other technical improvements. 

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.

RISE National 2024


The Advance Notice proposes the following changes:

Net payment impact

In a fact sheet, CMS said it expects:

  • Medicare costs to grow by 2.44 percent in 2025
  • MA plans will see a 3.70 percent change in revenue
  • The average increase in risk scores will be 3.86 percent (the figure doesn't account for normalization and MA coding adjustments) 

Part C Risk Adjustment Model 

Last year, CMS began a three-year phase-in of the use of the updated Part C Risk Adjustment Model (CMS-HCC model). CMS proposes to continue the phase-in next year, blending 67 percent of the risk score calculated using the updated 2024 MA risk adjustment model with 33 percent of the risk score calculated using the 2020 MA risk adjustment model.

CMS said it also is considering a more sophisticated calculation methodology for the FFS normalization factor that more accurately addresses the impacts of the COVID-19 pandemic without deleting data years. The FFS normalization factor is an adjustment to risk scores calculated using the models for 2025 payment to account for the expected growth in the average FFS risk score over time.

IRA updates

CMS intends to continue previously implemented IRA benefits in 2025 as well as eliminate the coverage gap phase to affect a three-phase benefit (deductible, initial coverage, and catastrophic) and cap out-of-pocket costs at $2,000.

Part D risk adjustment 
CMS proposes updates to the Part D risk adjustment model to reflect the redesign of the Part D benefit as required by the IRA, including the increase in plan liability given the $2,000 cap on annual out-of-pocket spending and the new Manufacturer Discount Program.

CMS said the updates to the 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 MA prescription drug (MA-PD) plan and stand-alone prescription drug plan (PDP) risk score trends. 

Part C and D Star ratings
CMS proposes updates to Star ratings for 2025, 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. CMS is also asking for initial feedback on substantive measure specification updates and comments on new measure concepts and demonstrating progress toward the Universal Foundation, a set of quality measures aligned across CMS programs.

CMS will accept comments on the Advance Notice through Friday, March 1 before publishing the final rate announcement on or before April 1.

RISE will explore these and other regulatory changes at RISE National, which will take place March 17-19 at Music City Center in downtown Nashville. Click here for the agenda and roster of speakers.