The Centers for Medicare & Medicaid Services (CMS) released its 2025 Medicare Advantage (MA) rate announcement on April 1, outlining reimbursement rates, risk adjustment methodologies, quality performance metrics, and other factors that impact MA health plans’ revenue and profitability. The 2025 rate announcement contains many new and updated provisions that carry implications for payers, who must take steps now to prepare for the year ahead.
The rate announcement projects a 3.70 percent payment increase, meaning payers should expect about $500 to $600 billion in total payments from CMS for 2025. It also includes many finalized policy changes that the MA and Part D Advance Notice introduced in January.
As health plan leaders begin financial planning and bid development for 2025, they should be aware of, and implement strategies for navigating, changes in each of these key areas:
- Impact of Growth Rates and Revisions on Benchmarks
The finalized CY2025 MA Capitation Rates reflect adjustments in growth rates and risk models. Despite a nominal decrease in the Fee-for-service (FFS) growth rate compared to the proposed rate, the Total FFS United States Per Capita Cost (USPCC) Growth Percentage increased, affecting benchmark calculations.
Health plans should anticipate fluctuations in benchmarks based on these adjustments and strategize bids accordingly to mitigate revenue impacts. To do this, they can develop multiple scenarios based on different assumptions regarding growth rates, risk models, and market dynamics. By simulating various scenarios, plans can identify potential revenue impacts and devise appropriate mitigation strategies.
- Risk Adjustment Model Blend and Coding Pattern Adjustment
CMS implemented a blend of risk adjustment models for CY2025, affecting risk scores and normalization factors. Although the coding pattern adjustment remains unchanged, health plans must adapt to the revised risk models to accurately project revenue. Despite the ongoing risk model transition, risk adjustment payments are projected to increase 3.87 percent on average.
Additionally, understanding the nuances of risk score calculations and model blends is crucial for financial planning and bid submission. Plans should have adequate data to project the financial impact in the second year of transition. By analyzing data from the first year of blended risk scores, risk adjustment teams should adapt targeting logic and study results to inform training programs. These programs will likely need to focus on changes to common chronic conditions like major depressive disorder and vascular disease, where the number of ICD-10 codes that map to the Hierarchical Condition Category (HCC) has significantly decreased.
- Changes in Medicare Part D Benefit
The implementation of the Inflation Reduction Act for Part D introduces significant changes, including the elimination of the coverage gap benefit phase and the coverage gap discount program.
Health plans must prepare for increased plan liabilities in the catastrophic benefit phase and adjust benefit designs accordingly to align with regulatory changes and maintain competitiveness. They can conduct a detailed financial impact analysis to assess the potential increase in plan liabilities during the catastrophic benefit phase. This analysis should consider factors such as member utilization patterns, prescription drug costs, and the expected distribution of members across benefit phases. It’s important to also consider innovative approaches such as value-based contracting with pharmaceutical manufacturers to ensure access to essential medications at reasonable prices.
- Star Rating Adjustments and Quality Measures
CMS finalized updates to Star Rating measures, including adjustments for “Extreme and Uncontrollable Circumstances” in certain regions.
Health plans should monitor changes in quality measures and explore new measure concepts, such as longitudinal studies addressing health equity and price comparison measures, to enhance performance and member satisfaction. The Health Equity Index (HEI), which replaced the reward factor, will impact scoring year 2027 and will be based on data collected during the 2024 and 2025 measurement period. Quality teams should be stratifying measure performance internally to get a pulse on groups or communities where targeted campaigns could improve equity.
- Revenue Impact and Bid Strategy:
While nationwide average benchmarks are projected to increase, the actual revenue change for individual MA plans depends on various factors, including bids, Star Ratings, and risk score trends. Health plans must assess bid strategies, rebate percentages, and risk-adjusted bids to navigate revenue fluctuations effectively and ensure financial sustainability.
To project the impact of the 2025 rate announcement, plans should utilize historical claims data, enrollment trends, and actuarial modeling. By integrating modeling and competitive analysis, health plans can optimize bids and benefit designs. Taking it one step further, plans should align value-based contracts and network incentives with bid strategies to enhance effectiveness
The 2025 MA Rate Announcement serves as a critical guidepost for health plan leaders, and understanding the updates it presents is essential. By strategizing planning and decision-making accordingly based on the rate announcement, health plans can ensure financial sustainability while enhancing quality of care and member satisfaction in the dynamic MA market.
Cynthia Henry is Director of Population Health Informatics at ZeOmega.
Cynthia Henry
Cynthia Henry isDirector of Population Health Informatics atZeOmega.
