The MedPAC 2025 Report to Congress, “Medicare and the Health Care Delivery System,” advises Congress on Medicare issues, including payments to health plans and issues affecting access to and quality of care. The report outlines several findings and recommendations that could impact various health plans, particularly Medicare Advantage (MA) and Part D prescription drug plans.
Here’s an overview of potential impacts on health plans:
Medicare Advantage (MA) Plans
Supplemental Benefits Oversight
The report reviews trends in spending for MA supplemental benefits. It also assesses the utility of MA encounter data for measuring enrollees’ use of these benefits. Items that may be of interest to health plans:
- Encounter Records – CMS now requires MA organizations (MAOs) to submit encounter records for all healthcare items and services, including supplemental benefits. Starting with the 2024 plan year, MAOs must also report aggregated information on enrollee use and spending for these benefits. Since 2023, MAOs have provided expenditure data for 16 specific supplemental benefits at the contract level. This increased data collection and transparency aims to provide policymakers with a better understanding of how MAOs spend supplemental benefit funds.
- Financial Scrutiny of Rebates – The report notes that Medicare’s spending for MA supplemental benefits is growing. It posits that plans may derive a large portion of the rebates that finance these benefits from additional program spending rather than plan efficiencies. In 2025, Part B premiums will pay an estimated $13 billion of MA rebates. Nearly $6 billion will come from fee-for-service (FFS) beneficiaries who do not access these supplemental benefits. Future policy actions may control rebate spending or adjust Part B premiums.
- Demonstrating Value – For special supplemental benefits for the chronically ill (SSBCI), CMS requires MAOs to maintain “bibliographies of relevant research studies or other data” to demonstrate that these benefits meet the “reasonable expectation” criteria for improving or maintaining health. MA plans may face increased pressure to provide strong evidence of the effectiveness of supplemental benefits.
- Impact on Benefit Design – The report highlights that MA plans have an incentive to offer new categories of supplemental benefits to attract enrollees. The uncertainty around the continuation of “flex cards” after the MA Value-Based Insurance Design (VBID) model ends in 2025 could lead to changes in how dual-eligible special needs plans (D-SNPs) structure their offerings.
Home Health Care Use
The Commission assessed home health care use among MA enrollees. It noted that enrollment in plans with home health cost sharing was associated with lower usage rates and fewer visits per user compared to plans without such cost sharing. Plan design can influence the utilization of post-acute care services for MA enrollees.
Institutional Special Needs Plans (I-SNPs)
The report finds that I-SNPs generally perform better than other MA plans in caring for long-stay nursing home residents, with fewer hospital discharges, all-cause readmissions, and emergency department visits. This positive assessment could lead to policy changes that encourage the broader use and expansion of I-SNPs.
Coding Intensity & Favorable Selection
MedPAC projects that MA risk scores are 16% higher than they would be in FFS Medicare due to coding intensity. They also project favorable selection increases MA payments by 11%. While CMS adjusts for some of this, risk scores and reimbursements are still estimated to be about 10% too high. Expect a continued focus on MA payment accuracy and potential future adjustments to risk adjustment methodologies, which would directly impact MA plan revenues.
Star Ratings
The report reiterates that the current MA star-rating system is flawed and does not reliably evaluate quality across plans. Despite this, these measures are the basis for the MA quality-bonus program. MedPAC estimates this increases MA payments by approximately $15 billion annually. The contract-wide reporting for MA plans means that star ratings may not accurately reflect local quality. As a result, CMS may consider future MA quality measurement system modifications. Those changes may impact plan incentives and public perception.
Part D Prescription Drug Plans (PDPs) and MA Prescription Drug Plans (MA-PDs):
PDPs are stand-alone prescription drug plans that beneficiaries in traditional fee-for-service (FFS) Medicare typically enroll in to obtain Part D prescription drug coverage. MA-PDs, meanwhile, integrate Part C (Medicare Advantage medical benefits) and Part D (prescription drug coverage) under the same plan. Beneficiaries enrolled in Medicare Advantage generally do not separately enroll in a prescription drug plan.
The report expresses concerns about the long-term stability of the PDP market, citing several trends:
- PDPs generally have higher basic premiums than MA-PDs.
- The number of benchmark PDPs (premium-free options for low-income beneficiaries) has continued to decline. Some regions have only one or two options in 2025.
- PDPs, on average, have higher drug costs but lower risk scores than MA-PDs. The suggestion being that before 2025, Part D’s payment system may not have adequately adjusted for PDPs’ higher costs.
- PDPs have been more likely to incur losses in Part D’s risk corridors compared to MA-PDs.
MA-PDs have several competitive advantages over PDPs:
- MA rebates provide additional funding that plans can use to reduce Part D premiums or enhance benefits. As a result, MA-PDs can offer attractive low or zero-premium plans without necessarily lowering their bids. The result is potentially distorted price signals for beneficiaries.
- MA-PDs can adjust their premiums after CMS publishes Part D subsidy amounts, giving them more flexibility to target specific premium amounts.
- MA-PDs can offer D-SNPs, allowing them to tailor benefits to dual-eligible individuals and attract this specific, often low-income, population.
- MA-PDs may have more effective drug cost management due to contractual relationships with prescribers.
- Coding intensity differences also lead to higher risk scores for MA-PD enrollees compared to PDP enrollees, which affects plan payments and premiums.
CMS enacted policy changes as a result of this assessment, and more may be likely in the future. For example:
Separate Normalization Factors
Starting in 2025, CMS began applying separate normalization factors for MA-PDs and PDPs to adjust for risk-score trends. The goal: more accurately reflect Part D costs in each sector. Many expect this normalization to increase risk scores for PDPs and decrease them for MA-PDs, potentially reducing the difference between the plan types.
Part D Premium Stabilization Demonstration
In 2025, CMS launched a demonstration providing additional subsidies to PDPs to stabilize enrollee premiums, a move expected to increase federal spending by approximately $5 billion. The demonstration aims to moderate the impact of the Part D benefit redesign on PDPs.
Impact of Inflation Reduction Act (IRA)
The redesign of the Part D benefit under the IRA increased plan liability for benefit spending. Many expect the IRA to put upward pressure on premiums and may lead to tighter formularies for both PDPs and MA-PDs.
The 2025 MedPAC report highlights ongoing shifts in the Medicare landscape, with MA plans gaining competitive advantages. It signals that policymakers are actively monitoring and implementing changes (like separate normalization factors and premium stabilization efforts) to address perceived imbalances and ensure the stability and efficiency of Medicare programs. Health plans will need to adapt to increased data scrutiny, evolving payment methodologies, and ongoing competitive pressures, particularly in the Part D market.
What Happens Next?
When MedPAC shares its report to Congress, it fulfills its legislative mandate to evaluate Medicare payment issues and report its findings and advice to the U.S. Congress.
Next steps include:
Congressional Review and Information for Policy Decisions
MedPAC will submit the report to the President of the U.S. Senate and the Speaker of the U.S. House of Representatives. The primary purpose of the report is to provide analysis and policy advice on the Medicare program to Congress. MedPAC aims to assist policymakers in making the program more efficient while informing future policy decisions.
Advisory Role and Ongoing Support
As an independent congressional agency, MedPAC’s role is purely advisory; it does not implement policy itself. The Commission assists Congress and CMS as part of its mission to preserve beneficiaries’ access to high-quality care, control Medicare spending growth, and ensure sufficient payment for efficient providers.
Basis for Future Policy Discussions and Potential Changes
The detailed findings and recommendations within the report, such as those regarding supplemental benefits in MA serve as a foundation for legislative or regulatory discussions.
Implications of Recommendations
While the report itself doesn’t enact changes, the recommendations it contains have projected implications.
In essence, the report serves as a comprehensive, independent assessment for Congress, providing the necessary data, analysis, and expert recommendations to guide legislative and administrative decisions concerning the Medicare program’s future.
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