Last week, CMS unveiled the Calendar Year (CY) 2025 Advance Notice for the Medicare Advantage (MA) and Medicare Part D Prescription programs that would update payment policies for these programs. CMS estimates that these changes will increase MA plan revenues by an average of 3.70%, amounting to a $16 billion increase in overall payments from 2024 to 2025.
The Advance Notice complements a proposed rule for CY 2025 that CMS released in November 2023 that, if finalized, will strengthen protections for the millions of people who rely on MA and Part D prescription drug coverage. In particular, the proposed rule includes the adoption of a newly defined standard Part D benefit design featuring three phases: annual deductible, initial coverage, and catastrophic coverage. Additionally, changes entail a lower annual out-of-pocket threshold of $2,000, the sunset of the Coverage Gap Discount Program (CGDP) and establishment of the Manufacturer Discount Program (Discount Program). The draft of the Advance Notice also sets adjustments to the liability of enrollees, sponsors, manufacturers, and CMS within the new standard Part D benefit design. Key highlights of the proposed rule are summarized below.
Costs Counted Toward True Out-of-Pocket Costs (TrOOP)
The Inflation Reduction Act of 2022 (IRA) updates which categories of payments count toward the TrOOP spending. For CY 2025, the payments will include the previously excluded supplemental benefits provided by Part D sponsors and Employer Group Waiver Plans (EGWPs) and exclude payments under the new Manufacturer Discount Program.
Policy for Drugs Not Subject to Defined Standard Deductible
In CY 2025, the IRA replaces the coverage gap phase and CGDP with the Discount Program. Certain drugs like insulin and vaccines are exempt from the deduction. If a beneficiary has not met the deductible but has enough TrOOP-eligible costs, they will qualify for the Discount Program and meet the deductible. If the beneficiary meets the deductible or uses a drug not subject to it but isn’t eligible for Discount Program discount, the plan will cover the costs equivalent to what a manufacturer would have paid under the Discount Program.
Government Reinsurance Methodology
For CY 2025, the IRA changes the government reinsurance calculation method, which now varies based on drug types. CMS proposes that there will be a separate calculation for reinsurance subsidies and DIR allocations for applicable and non-applicable drugs, based on their share of gross covered prescription drug costs in the catastrophic phase.
EGWP Prospective Reinsurance Amount
The Part D redesign reduces the reinsurance percentage, which would cause CMS to overpay EGWPs using the existing methodology. To address this, CMS updates the methodology to ensure EGWPs receive appropriate prospective reinsurance payments for CY 2025, which will use the weighted average of per-member-per-month (PMPM) prospective reinsurance amount submitted by Part D sponsors for Enhanced Alternative (EA) plan during the bid submissions for CY 2025.
Definition of EA Benefit Design
In CY 2025, the IRA limits sponsors’ options to enhance benefits for EA plans to cover drugs excluded from Part D coverage and/or making changes that increase benefits’ actuarial value. This includes reducing the standard deductible or lowering cost-sharing in the initial coverage phase. The intent for CY 2025 is for CMS to use the Part D Out-of-Pocket Costs (OOPC) model to estimate the value of EA plans relative to the defined standard benefit.
The Advance Notice and the Draft CY 2025 Part D Redesign Program Instructions are open for public comment through 6:00 PM ET on Friday, March 1, 2024.
The Press Release on the Proposed Payment Updates for 2025 MA and Part D Programs may be viewed here. A fact sheet discussing the provisions of 2025 MA and Part D Advance Notice along with a list of frequently asked questions can be found here. Lastly, the Draft CY 2025 Part D Redesign Program Instructions fact sheet can be found here.
