2025 CMS Medicare Advantage and Part D Proposed Changes

It’s here. The Centers for Medicare & Medicaid Services released its Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug program on January 31. As part of the proposed payment policies, payments to Medicare Advantage plans for the 2025 calendar year are expected to increase by 3.7%, or $16 billion.

CMS also shared that proposed improvements to the Medicare Part D drug benefit would result in lower drug costs for millions of people on Medicare (see the Draft CY 2025 Part D Redesign Program Instructions for more). According to CMS, in 2025, due to the Inflation Reduction Act, annual out-of-pocket costs will be capped at $2,000 for people with Medicare Part D.

Net payment impact

The proposed policy changes on Medicare Advantage plan payments relative to 2024 are expected to have the following impact (year-to-year percentage change in payment): 

  • Effective growth rate: 2.44%
  • Rebasing/repricing: TBD
  • Change in Star Ratings: – 0.15%
  • Medicare Advantage pattern adjustment: 0%
  • Risk model revision and FFS normalization: -2.45%
  • Medicare Risk Score trend: 3.86%
  • Expected average change in revenue: +3.7%

Growth rates

In 2025, CMS is proposing to continue the three-year phase-in of the technical adjustment (finalized in the 2024 rate announcement) to the per capita cost calculations related to indirect and direct medical education costs associated with services furnished to Medicare Advantage enrollees. The Advance Notice proposes to apply 67% of the adjustment in 2025. 

Part C risk adjustment model

The three-year phase-in of the use of the updated Part C risk adjustment model began in 2024. CMS proposes to continue that phase in for 2025, blending 67% of the risk score calculated using the updated 2024 Medicare Advantage risk adjustment model with 33% of the risk score calculated using the 2020 Medicare Advantage risk adjustment model.

CMS is also considering a more sophisticated calculation methodology for the FFS normalization factor. Why? Because it more accurately addresses COVID-19’s impact without deleting the data years. The FFS normalization factor is an adjustment to risk scores calculated using the models for 2025 payment to account for the expected growth in the average FFS risk score over time. 

Inflation Reduction Act

CMS will keep Part D benefit-related Inflation Reduction Act updates in place for 2025, including the elimination of the coverage gap phase to affect a three-phase benefit (deductible, initial coverage, and catastrophic) and cap out-of-pocket costs at $2,000 for 2025. 

Part D risk adjustment

Part D risk adjustment model updates proposed by CMS reflect the redesign of the Part D benefit as required by the Inflation Reduction Act. These include the increase in plan liability given the $2,000 cap on annual out-of-pocket spending for 2025 and the new Manufacturer Discount Program.  

CMS also proposes to calibrate the Part D risk adjustment model using newer data years and updates to the normalization methodology to reflect differences between Medicare Advantage prescription drug plan and standalone prescription drug plan risk score trends. 

Part C and D Star Ratings

CMS proposes updates to the 2025 Star Ratings, including:  

  • Providing the list of eligible disasters for adjustment 

  • Non-substantive measure specification updates 

  • The list of measures included in the Part C and D improvement measures and Categorical Adjustment Index 

They’re also asking for feedback on substantive measure specification updates and comments on new measure concepts and demonstrating progress toward the Universal Foundation.