On January 31, 2024, the Centers for Medicare & Medicaid Services (CMS) released the Advance Notice of Methodological Changes for Calendar Year (CY) 2025 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (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).  

CMS will accept comments on the CY 2025 Advance Notice and Draft CY 2025 Part D Redesign Program Instructions through Friday March 1, 2024, before publishing the final Rate Announcement and program instructions no later than April 1, 2024.  

Below, ADVI provides highlights from each announcement. If you have any questions or would like further information, please do not hesitate to contact your ADVI Account Manager. 

2025 Medicare Advantage and Part D Advance Notice 

Medicare Advantage Plan Payments
The annual Advance Notice includes proposed annual payment rates for Medicare Advantage plans. The CY 2025 Advance Notice projects that if finalized, Medicare Advantage plans will see an average increase of 3.70 percent for 2025 (compared to a 3.32 percent increase in 2024). The larger increase is partially due to growth rates of underlying costs, 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. Without the MA risk score trend the bottom line would be –0.16 percent. 
Part D Standard Benefit Parameters for 2025
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 in the CY 2025 Advance Notice include:
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 for the 2025 Star Ratings.  
CMS is soliciting initial feedback on substantive measure specification updates and comments on new measure concepts and demonstrating progress towards the Universal Foundation (measuring quality across the entire care continuum). 
Part C Risk Adjustment 
In the 2024 Rate Announcement, CMS finalized a three-year phase-in of the 2024 CMS-HCC risk adjustment model. 
CMS proposes to continue phasing in the updated 2024 CMS-HCC risk adjustment model.
For CY 2025, CMS proposes to blend 67 percent of the risk score calculated using the updated 2024 MA risk adjustment model with 33 percent of the risk score calculated using the 2020 MA risk adjustment model. 
CMS is considering 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 would increase the normalization factor of the 2024 model from 1.015 in 2024 to 1.045 in 2025. 
Part D Risk Adjustment
CMS re-estimated the Part D models to reflect the new structure of the Part D benefit. using 2021 diagnoses and 2022 drug costs. They also have provided estimates with Part D models estimated on 2018 diagnoses and 2019 drug costs. 
CMS presents predictive ratios (which are predicted as compared to actual costs) for the new models and finds that they predict costs fairly accurately for those with higher costs. 
Due to differences between trends in risk scores between MA-PDs and PDPs, CMS is proposing to have 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 Advance Rate Notice include:
End Stage Renal Disease (ESRD) Risk Adjustment Models for CY 2025 
Program of All-Inclusive Care for the Elderly (PACE) Risk Adjustment 
Medicare Advantage Coding Pattern Difference Adjustment 
Medicare Advantage Normalization Factor 
Annual Percentage Increase for Part D Parameters 
Part D Risk Adjustment Model 
Part D Normalization 
Adjustments for Medicare Shared Savings Program and Innovation Center Models and Demonstrations, and Advanced Alternative Payment Models 
Additional Adjustment to FFS per Capita Costs in Puerto Rico 

Draft CY 2025 Part D Redesign Program Instructions 

The Advance Notice references provisions of the Inflation Reduction Act that affect the structure of the defined standard Part D drug benefit. These changes are described in detail along with guidance for changes in place for 2025, as well as guidance for CY 2023 Medical Loss Ratio (MLR) reporting related to the Inflation Reduction Act Subsidy Amount (IRASA). 

Costs Counted Toward True Out-of-Pocket Costs (TrOOP)
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 
Beginning in 2025, supplemental Part D coverage provided by enhanced alternative (EA) Part D plans and other health insurance (OHI) will contribute to TrOOP, including supplemental coverage provided by Employer Group Waiver Plans (EGWPs) and reductions by Medicare-Medicaid Plans and D-SNPs. 
CMS is seeking comment on whether other third-party payments could be included in the calculation of TrOOP. 
Policy for Drugs Not Subject to Defined Standard (DS) Deductible
For CY 2025, if a beneficiary has not satisfied their plan deductible but has incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible, they will be both an applicable beneficiary under the Discount Program and deemed to have satisfied their plan deductible. 
If the beneficiary incurs sufficient costs to satisfy a plan’s deductible that is lower than the DS deductible but has not yet incurred TrOOP-eligible costs to meet the DS deductible, plans are responsible for covering the portion of costs that would have been otherwise covered by the manufacturer discount.
CMS-provided example:
An Enhanced Alternative (EA) plan charges 20 percent coinsurance and no deductible for drugs in Tier 1. 
Beneficiary cost-sharing is $40 for a $200 drug; 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 by the manufacturer discount if the beneficiary were an applicable beneficiary in the initial coverage phase. 
CMS notes it will provide additional examples in PDE reporting instructions later in 2024.  
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 is proposing to 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 percent. 
Beginning 2025, the reinsurance payment amounts are 20 percent for applicable drugs and 40 percent 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 draft 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
CMS has the authority to establish additional contract terms that CMS finds “necessary and appropriate,” as well as authority to propose regulations imposing “reasonable minimum standards” for Part D sponsors. Under this authority, CMS can deny bids that are not meaningfully different from other bids submitted by the same organization in the same service area. 
Following the enactment of the IRA and changes to the Part D benefit, CMS requested input from interested stakeholders on the meaningful difference requirement in April 2023. 
After consideration of the statutory changes under the IRA and the comments received, CMS is establishing an absolute percent threshold approach for evaluating PDP meaningful difference for CY 2025. CMS will require that both the share of meaningful difference attributed to formulary robustness, and the share of meaningful difference attributed to benefit design/tier placement, be no worse than the respective values for the basic plan offered in the same region. 
Different TrOOP-Eligible Costs in Basic Alternative and Enhanced Alternative Plans with Non-Defined Standard Deductible 
Part D sponsors may offer plans with non-DS deductibles (e.g., lower deductibles for some or all covered Part D drugs) as either basic alternative (BA) or EA plans. A BA plan with a plan deductible below the DS deductible offers such coverage as part of its basic benefit prescription drug coverage. An EA plan that eliminates or lowers the plan deductible below the DS deductible for covered Part D drugs that would otherwise be subject to the DS deductible provides such coverage as part of its Part D supplemental benefit.
In CY 2025, amounts reported as Part D supplemental benefits will be TrOOP-eligible costs and count as incurred towards the DS deductible threshold. 
Because Part D supplemental benefits count towards TrOOP in CY 2025, but basic prescription drug coverage does not, the cost impact for a BA plan with a reduced deductible is much higher than for an EA plan. Under the BA plan, only the patient pay amounts count towards the DS deductible, whereas under the EA plan, both the Part D supplemental benefits paid by the plan and patient pay amounts count towards the DS deductible. Consequently, enrollees in BA plans with lower deductibles will take longer to exceed the DS deductible threshold before the Discount Program discounts are available. 
CMS solicits comment on whether they should continue to allow BA plans with lower deductibles beyond 2025. 
Other topics addressed in the Draft Program Instructions include:
Changes to Employer Group Waiver Plans (EGWPs) Prospective Reinsurance Amounts 
Risk corridor methodology (no change proposed) 
Creditable coverage 
Retiree drug subsidy parameters/requirements 
Redesign Impact on Capitated Payments to PACE Organizations 
Definition of Enhanced Alternative Benefit Design (to align with three-phase benefit design)  
Non-Calendar Year EGWPs 

ADVI will continue monitoring developments and the next steps. This is a delayed release. ADVI Instant content is distributed in real-time for retainer clients. Get in touch to learn more about how we can support your commercialization, market access, and policy needs.