2025 Medicare Advantage and Part D Rate Announcement

Today, the Centers for Medicare & Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2025 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies (the Rate Announcement). CMS’s goals for MA and Part D mirror our vision for the agency’s programs as a whole: to advance health equity; drive comprehensive, person-centered care; and promote affordability and the sustainability of the Medicare program.

In the CY 2025 MA and Part D Advance Notice, CMS proposed updates to payment factors for CY 2025 and received a wide variety of comments on our proposals. CMS appreciates the submitted comments and considered applicable comments as we finalized the policies contained in the CY 2025 Rate Announcement. Under this CY 2025 Rate Announcement, payments from the government to MA plans are expected to increase on average by 3.70 percent, or over $16 billion, from 2024 to 2025. The federal government is projected to pay between $500 and $600 billion in Medicare Advantage payments to private health plans in 2025.

This fact sheet discusses the provisions of the Rate Announcement, which can be viewed by going to: https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/announcements-and-documents and selecting “2025 Announcement.”

Net Payment Impact

The chart below indicates the expected impact of the policy changes and updates on MA plan payments relative to 2024. 

Year-to-Year Percentage Change in Payment

¹ Rebasing/re-pricing impact is dependent on finalization of the average geographic adjustment index, which was not available with the publication of the CY 2025 Advance Notice.

² Change in Star Ratings reflects the estimated effect of changes in the Quality Bonus Payments for the upcoming payment year; 2025 Quality Bonus Payments are based on 2024 Stars, which in turn are based on performance for most measures in 2022. Changes may occur between the Advance Notice and Rate Announcement due to the plan appeals process for the QBP ratings.

³ The impact of the update to the Fee-for-Service (FFS) normalization factors for MA risk adjustment is not shown in the fact sheet separately because there is considerable interaction between the impact of the MA risk adjustment model updates and the normalization factor update. Therefore, the combined impact is shown in the fact sheet. 

⁴ The MA risk score trend is the average increase in MA risk scores, not accounting for normalization and coding pattern adjustments to MA risk scores, which are shown in separate rows. The risk score trend is calculated by using MA risk scores from 2018 – 2020, calculated using the risk adjustment models and model blend as finalized in the CY 2025 Rate Announcement. The trend is an industry average and individual plans’ experience will vary.

Note: An estimate of the expected change in MA payment should include all factors that will impact what the federal government will pay the MA industry the following year, including the impact of certain additional factors that are not changing as a result of CMS policy updates, such as the expected increase in MA risk scores (MA risk score trend) of 3.86% in 2025 as compared to 2024, with an impact of over $17 billion.

Growth Rates

The Effective Growth Rate reflects the current estimates of the growth rates of benchmarks used to determine payment for MA plans. The growth rates are largely driven by the growth in Medicare Fee-For-Service (FFS) per capita costs, as estimated by the CMS Office of the Actuary. The CY 2025 Rate Announcement Medicare FFS baseline includes FFS payments through the fourth quarter of 2023, an additional quarter of FFS program spending as compared to the CY 2025 Advance Notice. The 2025 growth rate estimates include a technical adjustment to the per capita cost calculations related to indirect and direct medical education costs associated with services furnished to MA enrollees. In CY 2025, CMS will continue the phase-in of the technical adjustment described in the CY 2024 Rate Announcement, and apply 52% of the technical adjustment in CY 2025. 

Part C Risk Adjustment

CMS finalized an updated Part C Risk Adjustment Model in the CY 2024 Rate Announcement and began an expected three-year phase-in of the use of that model, referred to as the 2024 CMS-HCC model, starting with CY 2024. The updated model includes important technical updates to improve its predictive accuracy, including restructured condition categories using the International Classification of Diseases (ICD)-10 classification system (instead of the ICD-9 classification system), updated underlying FFS data years (from 2014 diagnoses and 2015 expenditures to 2018 diagnoses and 2019 expenditures), an updated “denominator year” in determining the average per capita predicted expenditures to create relative factors in the model, as well as applying our longstanding principles to make revisions focused on conditions that are subject to more coding variation.

For CY 2025, CMS will continue to phase in the updated risk adjustment model as proposed by blending 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. Additionally, CMS will adopt a more sophisticated methodology for how it normalizes risk scores to more accurately address the impacts of the COVID-19 pandemic without excluding data years. The purpose of FFS normalization is to account for trends in the FFS risk scores between the last time the model was recalibrated with new FFS data and the MA payment year.

MA Risk Score Trend

The MA risk score trend is the average increase in MA risk scores across plans, not accounting for normalization and coding pattern adjustments to MA risk scores. It is a key factor in the level of overall MA payments. The trend can be due to several factors, including changes in demographics and coding patterns. The trend is an industry average and individual plans’ experience will vary. We calculate the MA risk score trend for the 2020 and 2024 CMS-HCC risk adjustment models used for CY 2025 payment separately and blend the trends based on the phase-in of the 2024 CMS-HCC risk adjustment model. The risk score trend is 3.30% under the 2024 CMS-HCC model and 5.00% under the 2020 CMS-HCC model. CMS blended the MA risk score trends using the same blend that will be used to determine CY 2025 risk scores (i.e., 67% of the MA risk score trend under the 2024 CMS-HCC model and 33% under the 2020 CMS-HCC model). This blended MA risk score trend for CY 2025 is 3.86%. 

Puerto Rico

The proportion of people with Medicare who receive benefits through MA (as opposed to FFS) is far greater in Puerto Rico than in any other state or territory. The policies finalized for CY 2025 will continue to provide stability for the MA program in the Commonwealth and for Puerto Ricans enrolled in MA plans. These policies include basing the MA county rates in Puerto Rico on the relatively higher costs of individuals in FFS who have both Medicare Parts A and B and applying an adjustment regarding the propensity of individuals with zero claims. We appreciate the comments on alternate adjustment approaches that may be appropriate in Puerto Rico and share the concerns raised by several commenters about access to health care for U.S. citizens in Puerto Rico. CMS will continue to analyze the issues raised by commenters.

Inflation Reduction Act (IRA) Updates for 2025

The IRA made several amendments and additions to the standard Part D drug benefit for CY 2023 and subsequent years. Part D benefit-related IRA updates will be in place for CY 2025 and are described in the Rate Announcement and related Final CY 2025 Part D Redesign Program Instructions. These updates include the elimination of the coverage gap phase to effect a three-phase benefit (deductible, initial coverage, and catastrophic) and the cap on out-of-pocket costs at $2,000 for CY 2025. Other previously implemented IRA benefits will continue, including no cost sharing for enrollees in the catastrophic phase, a $35 month supply cap on enrollee cost sharing for each covered insulin product, and no cost-sharing for adult vaccines recommended by the Advisory Committee on Immunization Practices that are covered under Part D. For more details, please see the Fact Sheet for the Final CY 2025 Part D Redesign Program Instructions available at https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf.

Part D Risk Adjustment 

CMS is finalizing updates to the Part D risk adjustment model to reflect the redesign of the Part D benefit as required by the IRA, including the increase in plan liability given the $2,000 cap on annual out-of-pocket spending for CY 2025 and the new Manufacturer Discount Program. These updates to the Part D risk adjustment model are essential for plan sponsors to develop accurate bids for CY 2025. Other changes finalized for CY 2025 include calibrating the model using newer data years and updating the normalization methodology to reflect differences between Medicare Advantage prescription drug (MA-PD) plan and stand-alone prescription drug plan (PDP) risk score trends that will improve payment accuracy. 

Part C and D Star Ratings

In the Advance Notice, CMS provided information and updates in accordance with the Star Ratings regulations at 42 C.F.R. §§ 422.164, 422.166, 423.184, and 423.186. We appreciate commenters’ suggestions on future measures and concepts as we continue to enhance the Star Ratings over time. 

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.   

MA Data Request for Information (RFI)

We also want to remind the public to please consider submitting comments to the Medicare Advantage Data RFI we announced in January. Comments are due on May 29, 2024. The MA data RFI can be accessed on the Federal Register’s webpage at https://www.federalregister.gov/public-inspection/2024-01832/request-for-information-medicare-advantage-data.

Frequently Asked Questions 

Note: please see the detailed FAQ section in the CY 2025 Advance Notice Fact Sheet for additional FAQs.

1. How will the finalized changes in the 2025 Rate Announcement impact payments to MA plans? 

MA payments from the government to MA plans are expected to increase by 3.70 percent on average from 2024 to 2025. This is an increase of over $16 billion in 2025 compared to 2024 in expected MA payments. This expected increase includes consideration of the various elements that impact MA payment, such as 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, which can be driven by a number of factors including MA demographics and coding patterns. This increase represents the average expected payment update across plans, and thus, there will be variation among plans in terms of their plan-specific payment impacts, including plans that would see a larger or smaller impact year over year.

2. What drives the MA payment Growth Rates? 

As required by statute, the growth rates used in the calculation of the MA rates reflect the growth in per capita costs for non-ESRD individuals enrolled in either Medicare Fee-for-Service (FFS) or Medicare health plans.^[1] The growth rates are based on the expected change in United States Per Capita Costs in Fee-For-Service (FFS USPCC) and in Medicare overall (both FFS and MA) and, as such, are largely driven by trends in per capita costs for individuals in Medicare FFS. The Effective Growth Rate in the Fact Sheet is a national average of expected change in the per capita costs year over year. The main driver of the Effective Growth Rate is the FFS USPCC, with the Total USPCC used to calculate the Pre-ACA benchmark cap amount for each county. We note that the Effective Growth Rate shown in the chart at the beginning of this Fact Sheet includes 52% of the technical adjustment to the growth rates related to MA medical education costs.

3. Why did the Effective Growth Rate change from the Advance Notice to the Rate Announcement? 

Each year in the Rate Announcement, CMS updates the growth rates to be based on the most current estimate of per capita costs. The growth percentages are based on CMS’ best estimate of historical Medicare FFS program experience and projected trends in Medicare FFS program payments using the most up-to-date data available. We continue to consider it best practice to base the growth rates on the most recent data and assumptions available at the time those values are announced. Therefore, for each release of the growth rates, CMS updates historical experience, as well as projection factors, based on the most recent data. 

Three significant changes were made to the Medicare fee-for-service (FFS) baseline projections between the CY 2025 Advance Notice and the CY 2025 Rate Announcement. First, the tabulation of Medicare FFS services provided through the third quarter of 2023 was updated to include program payments during the fourth quarter of 2023.  Also, the FFS enrollment base used to calculate 2023 per capita costs was updated for the CY 2025 Rate Announcement and resulted in greater Part A enrollment. Additionally, the medical education adjustment has changed from 67% in the Advance Notice to 52% in the Rate Announcement.

4. Did CMS use more updated data to calculate the growth rate in the CY 2025 Rate Announcement, including data from quarter 4 of 2023?

Yes, the CY 2025 Rate Announcement Medicare baseline used to calculate the growth rates includes an additional quarter of Fee-for-Service (FFS) program payments in the fourth quarter of 2023. 

5. Did the CMS data show increased utilization in quarter 4 of 2023 in Medicare Fee-for-Service? 

Actual program payments during the fourth quarter of 2023 for FFS services provided during the fourth quarter of 2023 did not show higher utilization than what was expected based on prior year seasonal trends.

6. How is the technical adjustment being phased in related to medical education costs? What impact does it have on the effective growth rate?

CMS finalized a technical adjustment to the growth rates related to medical education costs in the CY 2024 Rate Announcement and began phasing in the adjustment starting with CY 2024 at 33%. For CY 2025, CMS is finalizing a continued phase-in to increase the phase-in percentage from 33% in CY 2024 to 52% in CY 2025. If CMS maintained the same phase-in as in CY2024, the effective growth rate from CY 2024 to CY 2025 would have been 2.80%. 

Historically, prior to the CY 2024 MA rates, the tabulation of per capita costs for FFS individuals had included indirect medical education and graduate medical education costs paid by CMS to inpatient facilities associated with services furnished to MA enrollees because CMS had not been able to separately identify these MA-related payments from those made for services furnished to FFS individuals. The baseline modeling supporting the growth rate calculations was updated to enable us to identify the historical and projected costs of medical education paid by CMS for MA admissions. As noted in the CY 2024 Rate Announcement, we initiated a phased-in approach beginning with the CY 2024 rates to remove these medical education costs related to services received by MA enrollees from the historical and projected expenditures supporting the FFS costs that are included in the growth rate calculations. 

7. Why is the information in the bottom line table different than the information in the Economic Information section toward the end of the Rate Announcement? What does the bottom line equate to in terms of dollars? 

The Economic Information section in the Rate Announcement, like that in the Advance Notice, estimates the impact of the updates and policy changes on the Hospital Insurance and Supplemental Medical Insurance Trust Funds that are used to pay for Medicare FFS benefits. This section includes only significant updates and policy provisions, such as the impact of the growth rates and the finalized risk adjustment model. The Net Payment Impact table (also referred to as the bottom line table) in the Fact Sheet is intended to show the expected average impact of updates and policy changes as well as all other factors impacting MA payment year over year.  As a result, the table includes the estimated average impacts on revenue of variables not in the Economic Information section, such as the impact of Star Ratings and the impact of the MA risk score trend on plan payment. The 3.70% expected increase in CY 2025 payments to MA plans, compared to CY 2024, in the bottom line table, equates to an expected increase in MA plan payments of over $16 billion in CY 2025 compared to CY 2024. To omit, for example, the MA risk score trend from the estimate for 2025 would mean an underestimation of federal payments to the MA industry of over $17 billion in 2025 alone.

8. Why is the MA risk score trend so important to understanding year-over-year impacts?

The intent of the bottom line table in the Fact Sheet is to give the public a measure of the all-in impacts of the key policies and factors affecting MA payment for the following year. While not a policy proposal, the MA risk score trend is included in the bottom line table since it is a key factor in the level of overall MA payments. The MA risk score trend accounts for the average annual increase in MA risk scores and is driven by MA demographics and diagnosis coding patterns. It represents the estimate, based on historical data, for how MA risk scores will increase for the next year, which results in higher payments to plans. It is calculated using the risk adjustment model(s) for the payment year and is an important piece of information. Since CMS is finalizing a continued phase-in of the 2024 model, the 3.86% estimated MA risk score trend included in the 2025 Rate Announcement Fact Sheet is calculated using a blend of 33% of the MA risk score trend calculated with the 2020 model (5.0% MA risk score trend) and 67% of the MA risk score trend calculated with the 2024 model (3.3% MA risk score trend). Like all aspects of the bottom line table, the MA risk score trend is an industry-wide average, and thus, individual MA plans may have a different experience. Historically, the risk score trend has steadily increased over time, even in years when CMS implemented updated risk adjustment models. The MA risk score trend is an average estimate of growth, and we have found it to be a reasonable measure of risk score growth. 

9. What MA normalization methodology is CMS using for the final MA normalization factors? 

For CY 2025, CMS again examined the inclusion of data years impacted by the COVID-19 pandemic, and given our findings, as discussed in the CY 2025 Advance Notice, we also assessed using a methodology that we believe more reasonably accounts for the FFS average risk score trend since the beginning of the COVID-19 pandemic. Because excluding data years under the existing linear slope methodology does not produce reasonable projections for CY 2025, CMS proposed and is finalizing a more sophisticated multiple linear regression methodology for calculating normalization factors for CMS-HCC models for CY 2025. This new methodology will allow CMS to incorporate the most recent average FFS risk scores in the calculation without excluding any years of FFS risk scores while making more reasonable projections of what the actual average FFS risk score will be in the payment year. 

In CY 2025, for both MA and PACE End-Stage Renal Disease (ESRD) and Non-ESRD risk adjustment models, CMS will use a multiple linear regression methodology that incorporates historical FFS risk scores from the most current five years of average FFS risk scores available (2019-2023) and includes a flag that identifies whether a risk score is based on dates of service before 2020 or dates of service starting in 2020, the year of the onset of the COVID-19 pandemic, to calculate the normalization factors. This methodology allows us to represent the historical FFS risk score trend more accurately and calculate a factor without excluding the years impacted by the COVID-19 pandemic. We believe this approach will respond to previous feedback about concerns with excluding years and lead to a reasonably accurate prediction of the FFS risk score in 2025.

Like CY 2024, the impact of the update on the normalization factor is not shown in the fact sheet separately because there is considerable interaction between the impact of the MA risk model updates and the normalization factor update. Therefore, the fact sheet displays the combined impact. 

Please see the detailed FAQ section in the CY 2025 Advance Notice Fact Sheet for additional information on normalization.

10. How will the finalized changes impact individuals’ MA premiums and benefits in 2025?

Under the policies finalized in the CY 2025 Rate Announcement, CMS anticipates adequate payment to MA and Part D plans to ensure stable premiums and benefits and plan options for individuals for CY 2025. For CY 2024, the first year of the updated risk adjustment model implementation, average premiums and benefits for MA remained stable and plan choice and average supplemental benefit offerings across plans increased. 

11. What updates to the Part D Benefit are included in the CY 2025 Rate Announcement? 

 In the CY 2025 Rate Announcement, CMS provides information on the Part D benefit parameters that are to be updated or eliminated as a result of amendments to the Social Security Act made by the IRA. CMS also finalized updates to the Medicare Part D (RxHCC) risk adjustment model used to calculate direct subsidy payments for Part D benefits offered by stand-alone PDPs and MA-PD plans. The updated model reflects the CY 2025 Part D benefit changes under the IRA, including the increase in plan liability given the $2,000 cap on annual beneficiary out-of-pocket spending and the new Manufacturer Discount Program. These Part D risk adjustment model updates are essential for plan sponsors in developing accurate bids for 2025.

Additional Part D benefit-related updates under the IRA that will be in place for CY 2025 are described in the CY 2025 Rate Announcement and related Final CY 2025 Part D Redesign Program Instructions. These include the elimination of the coverage gap phase, which results in a new three-phase benefit (deductible, initial coverage, and catastrophic), and the lowering of the annual out-of-pocket threshold to $2,000. As was the case in CY 2024, there will be no cost sharing for enrollees in the catastrophic phase, enrollee cost sharing for covered insulin products will be limited, and there will be no enrollee cost sharing for adult vaccines recommended by the Advisory Committee on Immunization Practices and covered under Part D. For more information on these items, see the CY 2025 Rate Announcement, and the related Final CY 2025 Part D Redesign Program Instructions.

12. Has CMS updated the Part D risk adjustment model to reflect the redesign of the Part D benefit? 

Yes, the CY 2025 Rate Announcement includes an update to the Part D risk adjustment model that reflects the 2025 Part D benefit design as required by the IRA. This update reflects changes such as the lowering of the annual out-of-pocket threshold, limits on beneficiary cost sharing for covered insulin products and elimination of beneficiary cost sharing for certain recommended adult vaccines covered under Part D, the elimination of the coverage gap phase, changes to beneficiary cost sharing and Medicare reinsurance obligations in the catastrophic phase, the sunsetting of the Coverage Gap Discount Program, and establishing the new Manufacturer Discount Program.

The finalized Part D risk adjustment model reflects the expected increase in plan liability associated with the IRA and other changes to the Part D standard benefit. CMS measures how well the Part D risk adjustment model predicts costs by assessing how well it predicts costs across levels of risk, meaning that we look across subgroups of beneficiaries by their level of predicted risk and then calculate how well the model predicted the costs of these subgroups. Our analysis found that the new model generally predicts well for individuals with the highest predicted risk. While the model does not make assumptions about behavioral changes under the IRA benefit structure, future model calibrations will be able to use more recent data to incorporate any changes in utilization or costs that are unknown at this time.

13. Which years of data did CMS use to calibrate the Part D risk adjustment model?

For MA-PD plans and standalone PDPs, the Part D risk adjustment model finalized in the Rate Announcement is calibrated on 2021 diagnoses to predict 2022 expenditures. For PACE organizations, the finalized Part D risk adjustment model is calibrated on 2018 diagnoses to predict 2019 expenditures.

14. What Part D normalization methodology is CMS finalizing?

 CMS finalized a proposal to maintain the linear slope methodology for calculating Part D model normalization factors—which is to calculate a slope using five years of risk scores and then projecting the slope by the number of years between the denominator year to the payment year—but to do this calculation separately for MA-PD plans and PDPs. Applying separate normalization factors to risk scores used to pay MA-PD plans and PDPs will more accurately reflect Part D costs in each of these two sectors of the Part D market that are driven by a variety of market-based variables, including the overall benefits that they are able to manage, lack of an ability of PDPs to affect the submission of diagnoses in FFS, and available strategies used to manage costs. We are continuing to use the linear slope methodology, as opposed to the new multiple linear regression methodology that is being used for MA normalization factors, due to a one-year lag in the availability of risk scores for Part D, which prevents us from evaluating the updated methodology for Part D for CY 2025.

15. How does the revised Part D risk adjustment model consider changes to plan liability for individuals with a low-income subsidy? 

The finalized Part D risk adjustment model update reflects the changes to plan liability for low-income individuals as part of the IRA Part D benefit design. The RxHCC model uses health status (diagnoses) and prescription drug expenditure data from prior years to estimate relative plan liability; CMS takes these prior year expenditures and reallocates them among the plan, the beneficiary, the government, and manufacturer discounts according to the benefit design in the upcoming payment year. Specifically, the revised CY 2025 Part D risk adjustment model reflects expenditures based on the changes to plan liability for low-income beneficiaries that will be in place for CY 2025. The CY 2025 Part D risk adjustment model continues to have separate risk scores for aged low-income and disabled low-income individuals that are higher on average than risk scores for non-low-income beneficiaries, and in fact are expected to be even higher relative to non-low-income risk scores under the new benefit.

16. Does the revised Part D risk adjustment model accurately predict for individuals using high-cost drugs?

CMS measures how well the Part D risk adjustment model predicts costs by assessing how well it predicts costs across levels of risk, meaning that we look across subgroups of beneficiaries by their level of predicted risk and then calculate how well the model predicted the costs of these subgroups. For example, our analysis found that the new model predicts well for the group of individuals with the highest predicted risk (i.e., the highest risk scores).

The Part D risk adjustment model is not intended to predict costs for specific drugs. Part D plan sponsors submit bids that account for the projected revenue needed to cover the expected per-beneficiary costs of their enrollee population. Risk adjustment is used to adjust these plan bids and to calculate payment based on health status and demographic characteristics such that plans are paid more for individuals predicted to have higher drug costs on average. Plan sponsors are expected to manage the risk of their enrolled populations, and the Part D risk adjustment model is not intended to influence decisions about drugs prescribed to individuals. 

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