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LUGPA Policy Update: Biden Administration Finalizes Medicare Advantage Payment Rates for 2025

On April 1st, 2024, the Biden administration proceeded with its proposal to reduce next year's base payments to Medicare Advantage (MA) plans by an average of 0.16%. This decision, despite pushback from insurers and congressional allies, has significant implications for the healthcare landscape.

The base payment reduction stems from ongoing changes to the risk adjustment coding system initiated last year. This adjustment aims to improve the accuracy of MA payments by addressing abuses of the system. While the initial cut in base payments is concerning for insurers and has prompted a decline in stock values for major players, it is important to note that MA plans are expected to experience a net increase in payment once risk scores are factored in.

The proposed changes include:

  1. Out-of-pocket costs: Implementing a cap on out-of-pocket costs at $2,000 for the year 2025.
  2. Coverage gap: Removing the coverage gap phase, retaining only the deductible, initial coverage, and catastrophic phases.
  3. Cost sharing: Removing cost sharing for enrollees in the catastrophic phase and instituting a monthly cap of $35 on enrollee cost sharing for each covered insulin product.
  4. Cost-sharing for vaccines: Abolishing all cost-sharing for most covered vaccines.
  5. Medicare Part D drug benefit: Enhancing the structure of the Medicare Part D drug benefit for 2025 to decrease drug expenses for millions of Medicare beneficiaries.

The White House has defended the rate adjustment as necessary for curbing overpayments in the MA program, which covers over half of Medicare enrollees. The aim is to ensure that payments align more closely with actual healthcare utilization and costs. The administration's approach to MA reflects a broader effort to address inefficiencies and overpayments in the program. Recent measures include stricter quality rating methodologies and audits aimed at recovering excessive payments.

Insurers and lobbying groups have criticized the finalized rates, arguing that they fail to account for rising care utilization among Medicare seniors. As a result, concerns have been raised about potential cuts to benefits and premium hikes. The finalized rates for 2025 mark the second consecutive year of rate decreases in MA. Insurers will likely face challenges in adapting to these changes, which could impact profitability and market presence. According to HealthcareDive, research financed by a Medicare Advantage (MA) lobbying organization in February advocated for a growth rate ranging from 4% to 6%.

The finalized MA payment rates for 2025 signal continued regulatory efforts to align payments with actual healthcare costs and utilization. While insurers express concerns about the impact on profitability and benefits, regulators emphasize the importance of fiscal responsibility and program integrity. LUGPA will continue to monitor developments in MA payment policies and advocate for policies that ensure access to high-quality care for Medicare beneficiaries.

For more detailed information on the finalized CY 2025 Rate Announcement and Part D Redesign Program Instructions, please refer to the provided fact sheets and program documents: