Medicare Advantage Capitation Rates 2025

The Centers for Medicare & Medicaid Services (CMS) has recently unveiled the Calendar Year (CY) 2025 Advance Notice of Methodological Changes for Medicare Advantage (MA) Capitation Rates, as well as for Part C and Part D Payment Policies.

Stakeholders and interested parties are invited to submit their comments on the proposed changes until 6 o’clock p.m. Eastern Time on Friday, March 1, 2024, before CMS finalizes the Rate Announcement by April 1, 2024.

Medicare Advantage, a cornerstone of the Medicare program, offers beneficiaries an alternative to the traditional Medicare fee-for-service (FFS) model available through private plans. These plans are reimbursed by CMS through a capitation model, which pays a fixed amount per enrollee, making the accurate and fair setting of these rates critical to the program’s health and sustainability. The CMS is tasked with yearly updates to these payment rates, incorporating technical adjustments aimed at maintaining the accuracy and relevance of the MA payments.

The CY 2025 Advance Notice proposes several methodological changes that, if finalized, are anticipated to yield a net increase in MA payments to plans. This development is significant, suggesting a positive outlook for plans and potentially for beneficiaries in terms of available services and coverage options. The proposed updates take into account several factors, including the effective growth rate, changes in star ratings, MA coding pattern adjustments, risk model revisions, and the MA risk score trend. Together, these factors contribute to an expected average revenue change of +3.70 percent for MA plans in CY 2025.

A closer look at the individual components reveals a nuanced picture of the proposed changes:

Effective Growth Rate:

An increase of 2.44 percent signals optimism about the growth and stability of the Medicare Advantage market. This rate reflects broader economic trends and healthcare cost projections, indicating a healthy trajectory for the program.

Rebasing/Re-pricing:

Yet to be determined (TBD), this factor is crucial for aligning payment rates with current healthcare costs and economic conditions, ensuring that MA plans are adequately compensated for the services they provide to beneficiaries.

Change in Star Ratings:

A slight decrease of -0.15 percent in this area suggests adjustments in how plan quality is measured and rewarded. Star ratings are a key component of how CMS evaluates plan performance, impacting payments through quality bonus payments.

MA Coding Pattern Adjustment:

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.

Risk Model Revision and FFS Normalization:

A significant negative adjustment of -2.45 percent reflects updates to the risk adjustment model and efforts to normalize payments between MA and traditional FFS Medicare, ensuring equity and accuracy in compensation for the care of beneficiaries.

MA Risk Score Trend:

An increase of 3.86% in this area suggests that MA plans are expected to manage a population with increasing health risks, necessitating higher payments to accommodate the greater needs of these beneficiaries.

Additionally, the Advance Notice proposes updates to reflect the Part D redesign mandated by the Inflation Reduction Act, signaling significant changes in how prescription drug benefits are structured and financed within the Medicare Advantage and Part D ecosystems. Stakeholders are encouraged to engage in the comment process, contributing to the refinement and finalization of these policies. As the healthcare landscape continues to evolve, such updates are essential for maintaining the balance between adequate plan compensation, beneficiary affordability, and program sustainability.