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  • Writer's pictureTom Cianflone

What Lies Ahead for Medicare Advantage Plans in 2025?

These recent headlines all tell the same story:

And the story is this: Plan year 2025 is shaping up to be a disruptive year for Medicare Advantage (MA) plans. The fact is, MA plans are facing multiple headwinds for 2025, including:

  • Higher utilization and higher medical costs

  • Reimbursement rates for MA plans carriers find to be insufficient

  • Inflation Reduction Act of 2022 (IRA2022) provisions

Higher Utilization, Higher Medical Costs, Insufficient Reimbursement Rates

MA plans are experiencing higher than anticipated utilitization of medical benefits for a number of reasons:

  • Delayed care from the COVID-19 pandemic is catching up with plans, leading to higher than expected inpatient and outpatient utilization. It's uncertain how long this pent-up demand will continue.

  • The aging Medicare population is gradually driving up utilization over time as beneficiaries get older. Higher utilization may well be the new normal.

  • Medicare Advantage enrollment continues to grow rapidly, with over half of Medicare beneficiaries now enrolled in these private, managed-care plans. As more beneficiaries join MA plans, overall utilization of plan benefits increases.

The use of those benefits is costing plans more due to higher medical costs. Medical costs are no exception to the general increase in cost of living in the US over the last few years. For 2024, the WTW Global Medical Trends Survey is anticipating an 8.9% increase in medical costs for the US. For 2025, MA plans will receive a 3.7% increase in reimbursement rates according to the CMS final rule. Carriers see that as insufficient in the face of actual costs.

Inflation Reduction Act of 2022 (IRA2022) Provisions

Plan year 2025 brings with it certain provisions of IRA2022 that will increase MA plan cost pressures further. In an earlier blog post (What does the $2,000 annual prescription drug cost cap in 2025 mean for you?), I wrote about the $2,000 annual prescription drug cost cap that goes into effect in plan year 2025. The $2,000 annual cap will no doubt be welcome news for anyone taking brand name drugs that fall on the higher cost tiers (tiers 3, 4, 5) of their drug plan. However, if costs to drug plans increase as a result of IRA2022, MA plans that include prescription drug coverage may pursue savings by cutting costs elsewhere in the plans. Carriers are already on record about reevaluating vision, dental, OTC and flex cards, fitness and transportation benefits for its members in the face of increasing cost pressures.

What Does This All Mean for MA Plans in 2025?

Right now, we can't be sure what MA plans will look like in 2025. Officially, plan year 2025 details won't be released to the public until October 1st. But with multiple headwinds facing MA plans, and looking at comments carriers have already published, we are expecting a general reduction in benefits, most likely in the areas of supplemental benefits not covered by Original Medicare, for example: vision, dental, OTC and flex cards, fitness and transportation benefits.

I will be studying the plan changes and working with my MA plan clients to find the best fit for each of them for the 2025 plan year. In the meantime, feel free to contact me with questions.

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