On April 1, 2024, the Centers for Medicare and Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2025 Medicare Advantage (MA) Capitation Rates and Part C and D Payment Policies (Rate Announcement) (link) and an accompanying fact sheet (link). CMS concurrently released the Draft Calendar Year (CY) 2025 Part D Redesign Program Instructions (link) with corresponding Fact Sheet (link).   

2025 Medicare Advantage and Part D Rate Announcement

Medicare Advantage Plan Payments
The annual MA Rate Announcement includes proposed annual payment rates for Medicare Advantage plans. The announcement notes that the finalized policies for CY 2025 will see an estimated increase of 3.70% in average payments to Medicare Advantage plans for 2025 (compared to a 3.32% increase in 2024). The larger increase is partially due to growth rates of underlying costs, plan rebasing/re-pricing, 2024 Star Ratings for 2025 quality bonus payments, continued phase-in of risk adjustment model updates that were implemented in CY 2024 and increases to risk scores because of MA risk score trend.   
Note: Without the risk score trend, the estimated change in average payments to MA plans would be –0.16%.  
Part D Standard Benefit Parameters for 2025
In the 2024 Rate Announcement, CMS finalized:
Deductible: $590 ($45 increase over 2024)  
Initial Coverage Limit: not applicable: There will be no initial coverage limit and the initial coverage phase will extend to the maximum annual OOP threshold, at which point the catastrophic phase will begin.  
Beginning in CY 2025, the coverage gap phase will be eliminated and defined standard Part D prescription drug coverage will consist of a three-phase benefit (deductible, initial coverage, catastrophic).   
Out-of-Pocket Threshold: $2,000 ($6,000 decrease over 2024)  
MA/MAPD Star Ratings
Star Ratings updates finalized in the CY 2025 Rate Announcement include the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D Improvement measures and Categorical Adjustment Index for the 2025 Star Ratings.   
CMS announced a deadline of June 28, 2024 for all contracts to make their requests for review of the 2023 appeals and Complaints Tracking Module measure data for the 2025 Star Ratings. 
Starting with the 2024 measurement year (2026 Star Ratings), the weight of patients’ experience and complaints and access measures will be reduced to 2. 
CMS is implementing the “Universal Foundation” of quality measures which is a subset of measures that are aligned across programs.
CMS is adding Depression Screening and Follow-Up for Adolescents and Adults (Part C) and Adult Immunization Status (Part C) to the 2026 display page based on the 2024 measurement year.  
In the 2024 Advance Notice we solicited feedback regarding adding the Initiation and Engagement of Substance Use Disorder Treatment (Part C) measure to the Star Ratings in the future pending rulemaking.
CMS shared the feedback received with National Committee for Quality Assurance for their consideration as they make updates to these measures. 
Part C Risk Adjustment 
In the 2024 Rate Announcement, CMS finalized a three-year phase-in of the 2024 CMS-HCC risk adjustment model. 
In the 2025 Rate Announcement, CMS finalized as proposed to continue phasing in the updated 2024 CMS-HCC risk adjustment model.
For CY 2025, CMS will blend 67% of the risk score calculated using the updated 2024 MA risk adjustment model with 33% of the risk score calculated using the 2020 MA risk adjustment model. 
CMS is implementing a calculation methodology for the fee-for-service (FFS) normalization factor that more accurately addresses the impacts of the COVID-19 pandemic without deleting data years.
This adjustment increases the normalization factor of the 2024 model from 1.015 in 2024 to 1.045 in 2025. 
Part D Risk Adjustment
CMS is implementing the updated version of the RxHCC risk adjustment model proposed in the CY 2025 Advance Notice that incorporates changes made to the Part D benefit for CY 2025 as a result of the IRA.
This model is calibrated on 2021 diagnoses and 2022 expenditure data, as proposed in the Advance Notice. 
Due to differences between trends in risk scores between MA-PDs and PDPs, CMS is finalizing a normalization factor of 1.073 for MA-PD enrollees and 0.955 for PDP enrollees. This is the first year in which the Part D models would have different normalization factors based on plan type.  
Other topics addressed in the Rate Announcement include:
MA ESRD rates and risk adjustment models 
MA EGWPs 
Frailty adjustment for PACE Organizations and FIDE SNPs 
Direct Graduate Medical Education 
Organ acquisition costs for kidney transplants 
Indirect Medical Education (IME) phase out 
Retiree drug subsidy amounts 
Policies for Puerto Rico 

CY 2025 Part D Redesign Program Instructions 

Costs Counted Toward True Out-of-Pocket Costs (TrOOP)
For CY 2025, the annual OOP threshold will be $2,000. 
Third-party arrangements that will continue to contribute TrOOP include:
LIS cost-sharing support  
Qualified State Pharmacy Assistance Programs  
Indian Health Service of certain other Native American organizations, and  
AIDS Drug Assistance Programs  
Supplemental Part D coverage provided by enhanced alternative (EA) Part D plans and other health insurance (OHI) will be counted as incurred costs and included in the calculation of TrOOP.
This includes supplemental coverage provided by EGWPs, plan reductions in cost sharing for enrolled beneficiaries, such as reductions by Medicare-Medicaid Plans and D-SNPs, and CMMI model benefits that reimburse costs for covered Part D drugs (unless stated otherwise in a Request for Applications). 
For 2025, CMS is not counting as incurred, TrOOP-eligible costs any other third party payments not considered TrOOP-eligible prior to 2025. 
In 2025, any manufacturer payments made under the Discount Program, which was newly created under the IRA, do not count as incurred costs and are not included in the calculation of TrOOP. 
Finally, for beneficiaries who have opted into the Medicare Prescription Payment Plan (MPPP) will not impact how a beneficiary moves through the Part D benefit or what counts towards TrOOP.  
An MPPP participant’s TrOOP-eligible costs that are paid by their Part D plan under the MPPP will be treated as incurred costs. 
Part D sponsors must update their systems to ensure that TrOOP accumulators appropriately account for these costs in 2025.
CMS will provide PDE reporting instructions later in 2024 with additional examples to demonstrate how this policy should be implemented. 
Policy for Drugs Not Subject to Defined Standard (DS) Deductible
In CY 2025, if a beneficiary has not satisfied their plan deductible but has incurred sufficient true out-of-pocket (TrOOP)-eligible costs to satisfy the DS deductible, they will be an applicable beneficiary under the Discount Program and deemed to have satisfied their plan deductible. 
If a plan offers a non-DS plan deductible that is either lower than the DS deductible or is a deductible applicable to a subset of covered Part D drugs, and a beneficiary meets the plan deductible but has not incurred TrOOP-eligible costs to meet the DS deductible, the plan is responsible for covering the portion of costs that would have been otherwise covered under the Discount Program.
For example:
An Enhanced Alternative (EA) plan charges 20% coinsurance and no deductible for drugs in Tier 1. 
The beneficiary cost-sharing for a $200 drug is $40; therefore, the beneficiary has not met the $590 DS deductible ($550 remaining TrOOP to deductible). 
The plan must cover 10 percent of the costs that would be covered under the Discount Program if the beneficiary were an applicable beneficiary. 
CMS states they will provide PDE reporting instructions later in 2024 with additional examples to demonstrate how this policy should be implemented. 
Government Reinsurance Methodology
The IRA changes the government reinsurance calculation methodology for CY 2025 to be dependent on drug type (i.e., for applicable and non-applicable drugs). 
CMS will calculate the reinsurance subsidy separately for applicable and non-applicable drugs and allocate the share of DIR for applicable and non-applicable drugs based on their respective share of gross covered prescription drug costs that fall in the catastrophic phase.
The reinsurance payment amount is currently 80%. 
Beginning 2025, the reinsurance payment amounts are 20% for applicable drugs and 40% for non-applicable drugs. 
Definition of EA Benefit Design
In CY 2025, the Part D benefit redesign provisions under the IRA limit the available options for sponsors to enhance their benefits to offer an EA plan to the following:
Coverage of drugs that are specifically excluded from Part D drug coverage; and/or 
Any one or more of the following changes that increase the actuarial value of benefits above the actuarial value of the defined standard prescription drug coverage:
Reduction (or elimination) of the defined standard deductible 
Reduction of cost sharing in the initial coverage phase. 
Because the Part D benefit redesign reduces available options for EA plan design, CMS reconsidered what constitutes a permissible EA benefit design. The program instructions establish a process for ensuring that individuals receive value relative to the defined standard benefit when they enroll in an EA plan. Specifically, for CY 2025, CMS will use the Part D Out-of-Pocket Costs (OOPC) model to estimate the value of EA plans relative to the value of the defined standard benefit.  
PDP Meaningful Difference
As a result of the IRA’s Part D Benefit Redesign, CMS is establishing an absolute percent threshold approach for evaluating PDP meaningful difference for CY 2025. Under this approach, the plan sponsor must demonstrate that each EA plan Part D OOPC value generated from the OOPC model is at least 15% better than the basic plan offered by the same parent organization in the same region. 
“This approach aligns with a longstanding CMS goal to move the meaningful difference evaluation from an absolute dollar differential to a percent differential. Once established, a percent differential will not require annual updates for inflation and will establish a stable, consistent requirement from year to year.”  
Different TrOOP-Eligible Costs in Basic Alternative (BA) and Enhanced Alternative (EA) Plans with Non-Defined Standard Deductible
In the Draft Program Instructions, CMS solicited comments on whether they should continue to allow BA plans with lower deductibles beyond 2025.  
Per the Final Program Instructions, CMS will continue to allow BA plans with lower deductibles in CY 2025 “and will consider whether to continue to allow such plans in future years.” 
“Given the disparate treatment of plan paid amounts between basic prescription drug coverage and Part D supplemental benefits for purposes of incurring TrOOP-eligible costs towards the DS deductible, and the resulting disparate impact on plan costs, it is unclear to CMS if Part D plans will continue to offer BA plans with lower deductibles. If we were to prohibit BA plans from lowering the deductible, there would be no need for CMS to continue permitting BA plans because they would never be able to offer a different benefit from actuarially equivalent (AE) plans. CMS will continue to allow BA plans with lower deductibles in CY 2025 and will consider whether to continue to allow such plans in future years.” 
Other topics addressed in the Draft Program Instructions include:
Changes to Gross Covered Prescription Drug Costs (GCPDC) and Allowable Reinsurance Costs Definitions to Include Costs Paid by the Manufacturer Discount Program 
EGWP Prospective Reinsurance Amount Methodology 
Risk Corridor Methodology 
Creditable Coverage 
Retiree Drug Subsidy Parameters/Requirements 
Redesign Impact on Capitated Payments to PACE Organizations 
Non-Calendar Year EGWPs 
Medical Loss Ratio 
Specialty Tier Cost Share Thresholds 

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