Not An April Fool: CMS Finalizes 2025 MA Rate Notice

On Monday, the Centers for Medicare and Medicaid Services (CMS) finalized the Rate Announcement for Medicare Advantage (MA) and Medicare Part D programs for Calendar Year (CY) 2025 which includes a rate increase of 3.7% in addition to finalized Part D rules.

The final rule didn’t deviate much from the CMS proposed payment rate issued in January and includes benchmark cuts to payments by 0.16%. Becker’s notes that the MA risk score trend, which is the average increase in risk adjustment payments will offset risk model revisions leading to a 2.45% decline in revenue and a decline in star rating bonuses.

The CMS press release on the final notice adds that the Medicare Part D drug benefit will introduce the $2,000 cap on annual out-of-pocket drug costs for Medicare beneficiaries in 2025. From CMS Administrator Chiquita Brooks-LaSure:

The finalized policies in the Rate Announcement and the Part D Redesign Program Instructions will make improvements to keep Medicare Advantage payments up-to-date and accurate, lower prescription drug costs, and ensure that people with Medicare have access to robust and affordable health care options.

The overall pay bump is the cumulative sum of the effective growth rate (2.33%), the rebasing increase (0.07%), a cut to star ratings (0.11%), a bump tied to the risk score trend (3.86%) and a revision to the risk model (-2.45%). Naturally, the risk model revision is drawing a great deal of attention from insurers, who rely on rising risk adjustments as part of the business model. Inside Health Policy explains that between the advance and final notice, CMS reduced the expected hit insurers would feel on star ratings and the effective growth rate was also reduced from an original 2.44%.

Insurers were predictably freaked out by the perceived cut in pay for MA plans. America’s Health Insurance Plans (AHIP), the health insurance lobby, released a statement from President and CEO Mike Tuffin, warning that Medicare Advantage isn’t supposed to be stressful for insurance companies:

These policies will put even more pressure on the benefits and premiums of 33 million Medicare Advantage beneficiaries who will be renewing their coverage this fall. It is important to note that the Medicare Advantage and Part D programs are already undergoing a number of significant regulatory and legislative changes. Moreover, the cost of caring for Medicare Advantage beneficiaries is steadily rising.

And there were immediate consequences for MA carriers. The Wall Street Journal reports that on Tuesday morning, Humana stocks were down 10% with Centene and UnitedHealth Group also sliding significantly. The drops reflect growing concern from shareholders that the MA corner of the insurance market is no longer the growth guarantee it was prior to the Biden administration.

Barron’s explains that Medicare Advantage represented the last bastion of easy revenue for healthcare insurers after the pandemic and associated inflation spikes caused costs of care to skyrocket. Medicare Advantage plans are also set back competitively because they can’t raise premiums as easily as they can with employer-based and marketplace health plans.

But not all insurance companies were clutching their pearls. Fierce Healthcare reports that Clover Health CEO Andrew Toy was unfazed by the pay cuts:

In short, I think the CMS rate makes sense, is appropriate, and I feel good about what it means for Clover. … My view is that it corroborates our Clover view that other managed care orgs [sic] are seeing a challenge in managing care and cost on their PPO plans — an area they have pushed hard into the last few years as they chased growth.