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Advance Possibility

Five Noteworthy Updates for Medicare Advantage Plans from the CMS 2025 Final Rate Announcement

Ramneek Kaur
Solutions Consultant
April 24, 2024

The Centers for Medicare & Medicaid Services (CMS), on April 1st, finalized proposed changes to Medicare Advantage plan capitation rates and Part C and Part D payment policies for calendar year 2025. The policies finalized were essentially those proposed in the Advance Notice released in January 2024. Here are five significant changes to note for Medicare Advantage (MA) plans.

Effective Growth Rate Update for MA plans

The Effective Growth Rate reflects the current estimate of the growth in benchmarks used to determine payment for MA plans. This growth rate is largely driven by the growth in Medicare Fee-For-Service (FFS) per capita costs, as estimated by the Office of the Actuary.

In the 2025 Advance Notice, CMS proposed continuing its three-year phase-in of this technical adjustment finalized in the CY 2024 Rate Announcement. The technical correction to the per capita cost calculations is related to indirect and direct medical education costs associated with services furnished to MA enrollees. The resulting effective growth rate (FFS growth percentage) for 2025 was estimated to be 2.44% in the 2025 Advance Notice. The 2025 Final Rate Announcement includes a 2.33% Effective Growth Rate and an additional 0.07% Rebasing/re-pricing impact, which is dependent on the average geographic adjustment index.

Continued Implementation of CY 2024 CMS-HCC MA Risk Adjustment Model

Building on previous efforts, CMS plans to continue the phased implementation of the CMS-HCC model introduced in Calendar Year 2024, with full implementation targeted for 2026. For the 2024 payment year, risk scores were calculated as a blend of the 2020 CMS-HCC model and the updated 2024 model, with 33% weight to the former and 67% to the latter. For 2025, CMS proposes to continue the phase-in, with risk scores calculated as a blend of 33% from the 2020 model and 67% from the 2024 model.

The 2024 model updates included restructured condition categories using the International Classification of Diseases (ICD)-10 classification system (instead of the ICD-9 classification system), updated underlying FFS data years (from 2014 diagnoses and 2015 expenditures to 2018 diagnoses and 2019 expenditures), and more. In the 2025 Advance Notice and the Final Rate Announcement, CMS mentions 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 impact of updates in Risk Model Revision and FFS Normalization in CY 2025 is estimated to be (-2.45%).

MA Risk Score Trend Update

The MA risk score trend is the average increase across plans in MA risk scores, not accounting for normalization and coding pattern adjustments to MA risk scores. This trend is an industry average and individual plans’ experience will vary.

The MA risk score trend for 2025 was calculated by blending the trends from the 2020 and 2024 CMS-HCC models. The risk score trend is 3.30 percent under the 2024 CMS-HCC model and 5.00 percent under the 2020 CMS-HCC model. CMS blended the MA risk score trends using the same blend proposed to be used to determine CY 2025 risk scores (67% of the MA risk score trend under the 2024 CMS-HCC model and 33% under the 2020 CMS-HCC model). This blended MA risk score trend for CY 2025 is 3.86%.

No Update to MA Coding Pattern Adjustment

The MA Coding Pattern Adjustment in the 2025 Advance Notice and the Final Rate Announcement is set at 0 percent, indicating no change in the adjustment factor that accounts for differences in diagnosis coding patterns between MA plans and traditional Medicare.

Decline in STAR Ratings

2025 is the second year with a decline in STAR Ratings, which are a key component of how CMS evaluates plan performance. Any changes in STAR Ratings impact payments through quality bonus payments, and hence overall revenue for plans. In 2025, there is a (-0.15%) change in STAR Ratings, following a (-1.24%) difference in 2024.

Based on these five updates, CMS anticipates a 3.7%, or over $16 billion, increase in MA plan payments compared to last year. But the overall impact can vary for different plans based on their respective membership and enrollment changes.

To understand how some of these updates may impact your specific organization, reach out to the Episource team. Our experts can provide you with data-driven insights and work with you to create a customized plan that will help prepare you for any changes.