Under control, but changing

One of the goals of the Inflation Reduction Act is to reduce drug costs for Medicare beneficiaries. The biggest step toward this goal will be the implementation of the $2,000 cap on Part D out-of-pocket costs starting January 2025. Nearly 19 million Part D enrollees could save $400, and nearly two million with the highest costs could save an average of $2,500 per year.

Last year, Medicare took a small step toward that goal by eliminating the 5 percent coinsurance in the payment phase of catastrophic insurance. This is expected to save about 1.5 million participants each about $3,100 this year.

Both initiatives save seniors money. However, the costs that they previously paid out of their own pockets are not eliminated; they simply fall to another payer. Drug insurance carriers now have to cover a much larger share of these costs and are making some changes in response. For example, a comparison of 2023 and 2024 plans found that participant cost-sharing increased by more than a third and monthly premiums increased by 2-84% in three ZIP codes.

The Centers for Medicare and Medicaid Service had projected that the average total monthly premium would decline by 1.8% in 2024 and premium stabilization measures would limit the growth of the beneficiary's base premium to 6%. So how was it possible that premiums increased significantly? Simple answer: The monthly premium that participants pay is not taken into account in the premium stabilization program. CMS has four different rewards, each with its own purpose, which together make up the monthly premium.

IRA initiatives, including the $2,000 cap, will save 18.7 million participants an average of $400. Because this has a far greater impact than eliminating the 5 percent coinsurance, CMS is rightly concerned about the disparity in premiums between standalone Part D plans and MA-PD plans (Medicare Advantage plans that include drug coverage). CMS noted that “the resulting premium changes during the initial implementation of the IRA benefit improvements could lead to disruptive shifts in enrollment in the prescription drug market.” In other words, the significant premium increases for standalone Part D plans could result in participants switching to MA-PD plans. (The average monthly plan premium is $18.50, while many plans have no premium.)

Introducing: The Voluntary Premium Stabilization Demonstration Part D

In response, CMS is conducting a voluntary premium stabilization demonstration consisting of three elements.

1. CMS will reduce the beneficiary base premium (used to calculate the plan-specific base premium) by $15 for all participating individual plans. (Plan premiums cannot fall below $0.)
2. CMS will cap premium increases at $35 starting in 2024 (after the $15 reduction is applied).
3. There will be a change providing for greater government risk sharing for potential plan losses.

Note these important points about this demonstration.

• This is CMS's response to the likelihood of significant fluctuations in drug premiums due to the Inflation Reduction Act.
• The demonstration applies only to Part D standalone plans. CMS noted that MA-PD plans provide more flexibility to accommodate this variation, including the ability to apply discounts to premium reductions.
• Participation in drug tariffs is voluntary. However, CMS anticipates that plans that do not participate will be at a competitive disadvantage.

Discover the impact

On October 1, the Medicare Plan Finder revealed the Part D drug plans for 2025. At first glance, it looks like premium increases are somewhat under control, but the market is really in turmoil. Here are some results from my quick scan of 10 zip codes across the country.

• Each area will see between four and eight fewer drug plans, with the number down by six in most postcodes.
• The number of plans offered by companies is changing. One insurance company has exited the market and another is dropping two of its three plans.
• The plans adhere to the $35 increase limit.
• However, premiums will vary significantly. For example, in California, an insurer is abandoning its plan with the lowest premium. The two remaining plans increase premiums by $9 each. The lowest premium for another insurer's plan group will increase by $17 and another plan will be $0.60 less. That means everyone on the lowest premium plan would pay at least $16.40 more each month in 2025.

Although the full impact of the changes to Part D benefit design is unknown, drug insurance enrollees are in for a crazy ride. I plan to delve deeper into the premiums and costs, but this should serve as a wake-up call. If you don't review your plan, you're likely to experience some unpleasant surprises in 2025. For example, those whose plans disappear will automatically be moved to another plan unless they make a change before December 7th. Others face a significant change in premiums.

I was recently asked what everyone should do differently during this important open enrollment period. My answer: “Study the annual statement.” Historically, only three in ten have paid attention. Let's all try to do a better job.