Inflation Reduction Act’s impact: Threat to Medicare beyond drug pricing
TL/DR –
The Inflation Reduction Act’s drug price-setting provisions are said to inhibit clinical programs and innovation, and may also drastically reshape Medicare. Changes under the Act include increased liabilities for private insurance companies who administer Medicare Part D; these companies are expected to respond by raising premiums. Critics argue that the Act threatens the stability of the current pharmaceutical system, potentially reducing treatment access for seniors and causing plans to withdraw from high-cost areas.
The Impact of the Inflation Reduction Act on Medicare and Drug Pricing
The drug price-setting provisions of the Inflation Reduction Act have sparked controversy among experts, who warn of a potential negative impact on clinical programs and innovation in the pharmaceutical sector. However, less attention has been given to how the legislation is significantly reshaping Medicare.
While Democrats have achieved their goal of government-set drug prices, the Act could also lead to substantial cuts to Medicare, potentially threatening an entire segment of the benefit.
Most seniors rely on Medicare Part D for their prescription drug coverage. This program, established under former President Bush, is administered by private insurance companies and offers seniors various plans to lower their costs. Recent surveys reveal that 88% of seniors are satisfied with their coverage.
The Inflation Reduction Act, however, significantly alters this benefit structure. From next year, once a patient spends $8,000, plans will assume full liability for a patient’s drug costs, including Medicare’s subsidy. By 2025, this threshold will drop to $2,000, and plans will receive less subsidy from Medicare. Furthermore, plans are now obliged to cover vaccines and insulin with no cost sharing.
While these changes seem beneficial for seniors, they increase the financial burden on plans, which could lead to increased premiums. As expected, plans have requested a 21.5% increase in the basic premium for next year, leading to an average premium of $48 per month.
The Act also compels plans to cover negotiated drugs on their formularies, which could result in lost revenue from these drugs and increased pressure to keep premiums affordable for seniors.
With growing plan liabilities and fewer resources, plans may have to withdraw from high-cost counties, leaving rural and underserved communities at a disadvantage. There is already evidence of this, with the number of standalone Part D plans per county falling.
Plans may also narrow formularies or impose additional utilization management requirements to limit costs. This may reduce incentives for generic/biosimilar manufacturers to develop generics for non-negotiated branded products, preserving high prices for Medicare and commercial enrollees.
The Act threatens to disrupt the entire system of prescription drug innovation, finance, and distribution. It shifts tremendous liability onto plans, which could result in fewer plans with fewer benefits, restricting seniors’ access to coverage and necessary medications.
Having already disrupted the insurance market with the ACA, Congress should consider restoring Part D’s flexibility to manage benefits and compete effectively.
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