TL/DR –
The Inflation Reduction Act of 2022 (IRA) aimed to cut back government spending on Medicare and reduce prescription drug costs for program beneficiaries. The IRA has led to significant changes in the Medicare Part D program, which will be implemented from January 1, 2025. These changes include the elimination of the coverage gap, changes to the share of drug costs paid by different parties, capping beneficiaries’ annual out-of-pocket costs at $2,000, altering how True Out-Of-Pocket Costs (TrOOP) are calculated, introducing the Medicare Discount Program, and changes in reinsurance.
The Inflation Reduction Act 2022 and its Impact
The Inflation Reduction Act of 2022 (IRA) is a significant step by Congress to address increasing healthcare costs. The IRA aims to curb government Medicare spending and reduce prescription drug costs for Medicare beneficiaries. However, the implementation and adoption of the redesigned Medicare Part D program have sparked a wave of consequences for Medicare Part D plan sponsors (PDPs), beneficiaries, and manufacturers.
2025’s Medicare Part D Redesign
The IRA introduces several changes to the standard Part D benefit design taking effect on January 1, 2025. These changes include the elimination of the coverage gap, changes to the share of Medicare Part D drug costs paid by beneficiaries, plans, drug manufacturers, and CMS, capping out-of-pocket costs, updating the calculation of True Out-Of-Pocket Costs (TrOOP), introducing the Medicare Discount Program, and changing reinsurance. More details can be found in the Fact Sheet on Final CY 2025 Part D Redesign Program Instructions released by CMS.
The changes shift financial risk towards PDPs. In 2025, PDPs will take on financial risk from beneficiaries with an out-of-pocket threshold of $2,000, from manufacturers who previously funded 70% of drug costs during the Coverage Gap, and from CMS in the catastrophic phase. These changes may result in increased beneficiaries’ premiums or more restrictive formularies and significantly impact PDPs, beneficiaries, and manufacturers.
Impacts on PDPs
For contract year 2025, PDPs submitted their bids on June 3, 2024. They had to account for the new benefit design resulting from the IRA. The impacts will be most directly felt by PDPs that enroll a higher-than-average number of beneficiaries who have historically reached the catastrophic coverage phase and are projected to exceed the $2,000 out-of-pocket maximum.
PDPs will likely want to increase premiums due to these changes, but premium increases are limited by the IRA and market competition. As a result, PDPs may adjust their formularies to mitigate the impact of the new financial risk. They may favour lower-cost drugs or apply more utilization management tools. The law requires PDPs to cover Selected Drugs, but there are no requirements on how these drugs should be positioned in the formularies.
Impacts on Beneficiaries
Beneficiaries may face higher premiums but could also see lower point-of-sale cost shares. The introduction of the out-of-pocket maximum at $2,000 will significantly assist beneficiaries with high drug costs. Changes in True Out-of-Pocket Costs may result in some beneficiaries reaching the out-of-pocket maximum faster.
Impacts on Manufacturers
The impact of the Part D benefit design changes will vary for manufacturers depending on the types of drugs they produce. Some brand drug manufacturers might welcome the change from the Coverage Gap Discount Program to the Medicare Discount Program. However, the introduction of the out-of-pocket maximum could increase demand for maintenance drugs.
Changes in Part D formularies could significantly impact manufacturers. They might see increased demand for their products or be required to offer higher-value rebates. In the coming months, as PDP premiums and formularies for 2025 are released, the impacts of redesigning the Part D program for PDPs, beneficiaries, and manufacturers will become much clearer.
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