Medicare Advantage Rates Face Potential Cut in 2025

MA rates

MA rates face a potential 0.2% reduction as proposed by CMS. However, analysts said regulators are likely to increase the payout rate in the final announcement. Medicare Advantage health insurers will see a slight decline in their payment MA Rates in 2025 as a new regulatory proposal is finalized.

CMS released interim reimbursement rates for privately managed Medicare plans that increase total reimbursement by about 3.7% but include a 3.9% adjustment for medical risk coding.

Overall, this corresponds to a decline in payments of 0.2%; however, the government estimated that MA plans were still expected to receive $16 billion more in payments than this year.

The rate change is somewhat disappointing for insurers, but there is a good chance the reimbursement rate will improve in the final notification, analysts said.

MA rates Cut, But Reason for Optimism:

In Massachusetts, the government pays private insurers a flat monthly fee per member to cover Medicare senior care. The program continues to grow in popularity and now covers more than half of all Medicare beneficiaries.

As more seniors choose MA over traditional Medicare, health insurers are flocking to the program, expanding their market presence and benefits as they compete for members.

However, Medicare Advantage insurers are facing several obstacles in the program, including seniors requiring more care than expected. The trend, which began last year, is expected to continue through 2024 and will determine how much of the rewards plans can be retained as profit.

Therefore, the rates cut in 2025 are unlikely to be received positively by insurers. The MA lobby, the Better Medicare Alliance, and the insurer association AHIP released statements Wednesday saying they were still digesting the rule but stressed the importance of stability in MA.

If 2025 MA Rates are set as proposed, it would be the second consecutive year of payment cuts for Medicare Advantage plans as regulators seek to control the program’s rising costs. However, analysts noted that regulators are likely to improve tariffs before the rule finally takes effect. , CMS assumed a lower-than-expected effective growth rate for 2025, with the impact of increased utilization likely only taken into account late last year. The effective growth rate indicates how much costs increase in traditional Medicare and is an important factor in calculating overall reimbursement MA rates.

We believe there is a strong likelihood that the effective growth rate and total payments will improve when the final announcement is published.

Final tariffs have exceeded provisional tariffs in 9 of the last 10 years.

Interest rates are likely to be closer to the 1% MA rate hike investors had expected due to pressure on regulators.

Last week, a bipartisan group of more than 60 senators sent a letter to  CMS expressing their support for MA. And the Biden administration probably won’t want to disrupt the powerful health insurance industry too much in an election year.

Regulatory Turmoil:

The rate announcement continues to fuel an updated risk adjustment model introduced last year that aims to curb upcoding, a practice in which insurers inflate their members’ health conditions to get higher payments from the government.

In 2025, CMS expects to calculate risk scores based on 67% of the new model and 33% of the old model.

Regulators are being criticized for not doing enough to curb encryption as overpayments to MA plans run into tens of billions of dollars each year. However further adoption is likely to make MA less vulnerable to gambling.

Under the Biden administration, CMS has posed a significant challenge for MA payers.

Historically, MA can be twice as profitable for insurers as other types of plans. However, the program’s earning potential is decreasing in part due to regulatory changes.

Along with the unfavorable tariff and risk adjustment changes adopted last year, regulators have also introduced a stricter method of calculating quality scores, which has resulted in payers missing out on lucrative bonuses.  Last year, the government also greenlit a plan to audit Medicare Advantage payments that are expected to bring in about $4.7 billion to payers. Regulators have also taken action to address inappropriate denials of care, deceptive marketing, and brokerage practices that direct beneficiaries to specific plans in MA.

Health insurers say these measures, along with high medical utilization among seniors, are slowing their growth in MA.  Large MA health insurance companies, which together cover nearly half of all beneficiaries in MA, recently lowered their 2024 MA growth expectations.

Payers are taking action to address the changes and protect margins. In addition to cutting costs (several insurers laid off employees last year), some insurers have announced plans to reduce profits or increase premiums in 2024. Some plan to exit underperforming markets or abandon MA altogether.

Others resort to litigation. Elegance is suing HHS over changes to the way regulators calculate quality scores in MA, while the health insurer is suing the government to stop auditing overpayments.

For their part, regulators have emphasized that changes to MA rates for 2025 are necessary to ensure accurate payments, noting that premiums and benefits for seniors in the program have remained stable.

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