The Centers for Medicare and Medicaid Services is calling for another reduction in the Medicare Advantage base payment rate, which could further challenge health insurers struggling with rising costs.
Under a proposed rule issued Wednesday, the Medicare Advantage benchmark would be 0.16% less in calendar 2025 than under current policy, excluding risk adjustment, and would mark a second consecutive year of a lower benchmark rate. The agency plans to finalize the rule by April 1.
Related: Medicare Advantage 2024 enrollment: Winners and losers
Under President Joe Biden, CMS has executed a series of policies to constrain Medicare Advantage spending, raise the bar for quality bonuses, limit overpayments and protect beneficiaries from inappropriate marketing practices.
The latest rate cut aligns with that pattern and is likely to provoke the health insurance industry to lobby the Biden administration and Congress for relief. On Friday, Senate Majority Leader Chuck Schumer (D-N.Y.), Senate Minority Whip John Thune (R-S.D.), Senate Finance Committee ranking member Mike Crapo (R-Idaho) and a bipartisan group of 58 other senators wrote CMS Administrator Chiquita Brooks-LaSure suggesting the agency balance its goals.
"We recognize recent efforts by the Centers for Medicare and Medicaid Services to address quality, payment, marketing practices and access to care, and appreciate the agency’s decision to phase in certain policy changes finalized in the 2024 announcement," the senators wrote in a letter publicly distributed by the health insurance trade association AHIP. "As the administration considers updates for plan year 2025, we request that you ensure payment and policy stability for the Medicare Advantage program, to protect and strengthen this critical choice for current and future Medicare beneficiaries."
Medicare Advantage now covers just over half of the eligible population as enrollment grew steadily over the years, according to CMS data compiled by KFF.
As Medicare Advantage became increasingly lucrative and federal financial support increased, insurers have attracted more and more enrollees with plans that feature no premiums and offer an array of supplemental benefits not available from fee-for-service Medicare. These trends have attracted attention from policymakers concerned about government spending and disparities between traditional Medicare and the privatized option.
The health insurance industry has protested many of the administration's Medicare Advantage policies, and industry leaders UnitedHealth Group and Humana each disclosed to investors this month that spending on Medicare members is exceeding projections and impacting their finances. Some insurers have responded by scaling back extra benefits and laying off employees.
Center for Medicare Director Dr. Meena Seshamani said the agency is unconcerned about Medicare Advantage after a strong open enrollment period for calendar 2024. Monthly premiums rose less than $1 on average this year, more plans are available and supplemental benefits increased, according to CMS.
"The MA market is stable and thriving and growing," Seshamani said during a call with reporters Wednesday. "Premiums have stayed stable, rebates have increased, plan choices are still robust." The proposed changes are necessary to ensure accurate payments and would not result in benefit cuts, she said.
In their bids to participate in Medicare Advantage, health insurance companies reported they expect Medicare Advantage enrollment to grow more than 7% this year, and Dual Eligible Special Needs Plan sign-ups to increase 13%.
“We know that in the post-pandemic environment, MA plans are supporting seniors as they access deferred care and resume normal utilization of medical services at a time of rising medical costs," AHIP President and CEO Mike Tuffin said in a news release. "As significant reforms to Part D are implemented and drug costs continue to rise, it is also critical to ensure enrollees continue to have stable access to high-quality, affordable drug coverage."
The Blue Cross Blue Shield Association and the Better Medicare Alliance are still reviewing the proposed rule, according to spokespeople for the organizations.
"Medicare’s proposed 0.16% payment reduction for 2025 could be viewed as another headwind for a sector facing higher utilization costs, but it isn’t a surprise given the gradual phase-in of methodology changes," Bloomberg Intelligence senior research analyst Duane Wright wrote in a note to investors Wednesday. "Enrollment growth—albeit at a slower clip than prior years—should ease some strain from rate pressure for health plans like Humana and UnitedHealth. Modest improvement is possible when the final update is released."
Policy proposals
The benchmark rate is the difference between the agency's expected average change in revenue, 3.7%, and the average risk score trend, 3.86%, which amounts to a 0.16% decrease.
The draft regulation would continue CMS' three-year phase-in of a modified risk-adjustment model for insurers and risk-bearing providers in 2025. Next year, the agency proposes blending the risk-adjustment methodology unveiled a year ago with the previous formula. The agency also aims to update the fee-for-service normalization factor to address the impact on population health during the COVID-19 pandemic and to more accurately reflect the differences between Medicare Advantage plans with Part D prescription drug coverage and standalone Part D plans.
"The updated risk adjustment model we are phasing in pays plans more accurately, and accurate payment is what's best for MA enrollees and the program," Seshamani said.
The proposed rule includes a number of other policies, such as:
- Instituting a $2,000 out-of-pocket cap on prescription drug spending and a $35 monthly limit on insulin costs for Part D and Medicare Advantage plans with Part D benefits.
- Maintaining a 5.9% cut to the Medicare Advantage coding pattern adjustment, which aims to reduce plans' risk scores by resolving discrepancies in medical coding between providers and insurers.
- CMS projects that its previous changes to the Star Ratings quality measurement program will reduce payments 0.15% in 2025. The proposed rule requests public feedback on quality measures but does not address a "hold harmless" provision to would penalize plans that do not improve every year, which CMS proposed in 2022 and said it would be pending until at least 2025.
- Continues a three-year phase-in of a policy to end reimbursements to Medicare Advantage plans for graduate medical education costs.
CMS will accept public comments on the 2025 Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug Programs proposed rule until March 1.
