Insurers see reasons for concern as CMS keeps the Medicare Advantage purse strings tight for 2025

Medicare Advantage (MA) faces the prospect of constrained revenue and payments for participating stakeholders after CMS finalized what amounts to a small decrease in the 2025 payment rate.

Average revenue for MA plans is projected to increase by 3.7%, or more than $16 billion — but that’s primarily because of a prospective increase in the risk-score trend. Base payments to plans from Medicare are set to drop by 0.16%.

The key numbers remained unchanged from the advance rate notice that was published earlier this year. Stakeholders, especially insurers, had submitted comments seeking a more positive adjustment in the final notice.

CMS was unmoved by the feedback, saying the policies in the rate announcement “will provide continued stability to the MA market and MA beneficiaries.”

In addition, the updates “ensure accurate, appropriate payments to MA organizations and prevent wasteful Medicare spending,” the agency stated.

CMS also said it disagrees with the notion that “this continued reasonable update to payments in MA is actually a payment cut that will result in increased costs or fewer benefits for beneficiaries.”

To back up that argument, the agency pointed to the 3.32% net update for 2024, a sizable drop from the 8.5% jump for 2023. Plan availability, enrollment and benefit offerings have remained stable or improved this year, CMS asserted.

Insurer advocates said the impact on premiums and benefits could become apparent when plans submit their bids for 2025 MA coverage by early June, however.

Stakeholder trepidation

In comments to CMS on the advance notice, AHIP (formerly America’s Health Insurance Plans) wrote that the growth rate likely “will lead to benchmark changes that are insufficient to cover the cost of caring for 33 million MA beneficiaries in 2025.”

The 2025 benchmark increase actually slipped to 2.33% in the final notice, down from 2.44% in the advance notice. The change was based in part on the incorporation of FY23 Q4 Medicare fee-for-service (FFS) spending data in the calculation. Next year also will be the second of a three-year phase-in of a new methodology to measure medical education costs for hospitals in MA plans.

AHIP also cited a report it commissioned showing that because of geographic variation, MA plans in more than half of all states will receive benchmark changes that are below the national average.

Wall Street inferred potentially unfavorable consequences for insurers after the rate announcement. The day following the April 1 publication of the 2025 rate, significant drops in share value were seen for Humana (13.4%), CVS Health (7.2%) and UnitedHealth Group (6.5%).

Insurers also worry that provider payments in some markets could substantially increase as a result of wage-index adjustments, as was the case for 2024. That would happen without a corresponding increase in the MA benchmark, given that FY25 wage-index adjustments will not be finalized until this August.

Providers stand to be affected by the MA rate announcement. Jerry Penso, MD, MBA, president and CEO of the American Medical Group Association (AMGA), said the update amounts to “yet another round of payment reductions” for providers.

“I’m concerned plans will reduce their benefit packages to account for this cut, which will be detrimental to patients and providers,” Penso said in a written statement.

Evolving risk adjustment

Commenters on the advance notice expressed concerns with the new hierarchical condition category (HCC) risk adjustment model, which is being phased in over a three-year period starting in 2024. Some ICD-10 codes no longer map to HCCs in the new model, potentially affecting physician payments.

If physicians change their coding practices as a result, patient care could be affected, the commenters said.

“Because MA organizations are at financial risk for the care of their enrollees, changes in the risk adjustment model do not change the fundamental incentive in a capitated payment system to reduce morbidity and mortality by identifying and treating early stages of disease,” CMS responded.

The agency also addressed concerns that the risk adjustment model could affect providers in MA value-based payment models, potentially exacerbating shortages of accessible providers if payments are inadequate. The risk model should have no bearing on the obligation of MA plans to provide statutorily required levels of coverage and benefits, CMS maintained.

“We expect that MA organizations will renegotiate or revise the payment arrangements they have with their contracted providers as necessary to ensure that the MA plan continues to make benefits available and accessible for enrollees,” the agency said.

The AMGA’s statement noted the association’s ongoing concern “about the continued phase-in of changes to the MA risk adjustment model, which ultimately will result in lower payments to MA and providers.”

340B questions remain

There was scant mention in the rate announcement of an MA-based remedy for providers in the 340B Drug Pricing Program. Providers previously were granted a $9 billion remedy for a 340B payment shortfall spanning more than 4 ½ years in Medicare FFS and were due to receive those payments by early 2024.

In terms of the remedy’s impact on 2025 MA benchmarks, CMS said the amount was not considered since payments to plans are based on projected Medicare FFS per capita costs through Q4 2023.

“We anticipate addressing how aspects of the 340B remedy rule might impact MA rates for other years in future policymaking,” CMS said.