Quick 2025 IRA Impact on Medicare Part D Premium Costs

In 2025, the Inflation Reduction Act (“IRA”) will include several changes which will increase the monthly premiums of group Medicare Advantage (“MA”) plans significantly. The major changes affecting price include:

1.????? A new out-of-pocket cap of $2000

2.????? New manufacturer discounts to Medicare

3.????? Increased liabilities for health plans

Most Medicare retirees have their prescription medications covered under a Medicare Part D plan or included in their Medicare Advantage (“MAPD,” “MA-PD”). Private insurance companies administer these programs which Medicare retirees can choose to lower their costs and manage their benefits. The statute establishes a basic benefit, and different plans offer benefit packages of equivalent value. Medicare retirees have an option to pick plans with enhanced benefits by paying additional premiums.

In 2025, Part D plans may have a deductible and then a cost sharing mechanism that will apply until the member has reached $2000 in out-of-pocket costs, this is a change from the 2024 limit of $8000. Once the $2000 limit has been reached, the plan will pay 100% of the cost for the remainder of the plan year. Once a patient spends $2000, they will receive a smaller subsidy from Medicare. Additionally, plans are now required to offer first-dollar coverage of recommended vaccines and insulin with no cost sharing. This IRA change, which provides richer benefits, will increase plan costs for 2025.

Medicare Part D will add a manufacturer discount program. The program will eliminate the current coverage gap discount program and the coverage gap phase, leaving only the deductible phase, the initial coverage phase, and the catastrophic phase. CMS will significantly reduce the amount it reimburses for drugs when a Medicare Part D beneficiary is in the catastrophic phase. Medicare Part D plan sponsors will make up some of the difference by paying an increased portion of coverage for these drugs.

These changes coupled with the National Average Monthly Bid Amount increasing from $64.28 in 2024 to $179.45 in 2025 will have a dramatic increase in premiums. The national average monthly?bid?amount is equal to a weighted average of the?standardized bid amounts?for each prescription drug plan (not including fallbacks) and for each?MA-PD plan?described in section 1851(a)(2)(A)(i) of the?Act?(42 CFR § 423.279 - National average monthly bid amount).

Additionally, Employer Group Waiver Plans (“EGWP”), a type of MA health plan that employers offer to their retirees are going to be negatively affected.?EGWPs can also include Part D prescription drug benefits. The IRA will shift more risk to EGWP sponsors by dramatically reducing reinsurance payments for high claims and then increasing fixed direct subsidy payments to offset the reinsurance cuts. Overall, the decrease in reinsurance payments may far exceed the increase in direct subsidies, thus driving an increase in net plan cost of up to, $1,000 or more per member in 2025.

Furthermore, the IRA includes a provision that requires plans to cover negotiated drugs on their formularies. Because these drugs are required to be covered and because they are already being steeply discounted due to negotiations, plans cannot count on receiving the same rebates from these drugs as they do today. The result is lost revenue that plans will need to fund their new liabilities while trying to keep premiums affordable for members.

An action that would be incredibly unfavorable to members would be to have the plan sponsors narrow the drug formularies and / or enforce utilization management techniques to limit expenditures. Simply put, if a specific drug is required to be on the formulary, then:

1.????? Plans cannot count on receiving the same rebates from these drugs as they do today.

2.????? Plans may choose not to cover other branded competitors or their generics/biosimilars, unless the drug is a protected class, because they can secure far lower prices for the negotiated drug.

Therefore, it is safe to assume that generic / biosimilar manufacturers will lose any incentive to develop generic drugs for non-negotiated branded products which will reduce competition and preserve the unaffordable prices not only for Medicare recipients but also for covered actively employed members.

These changes place additional liabilities on plans, increasing their expenditure significantly. The initial response for the plan sponsors will be to increase premiums paid by the member, the employer group, or a combination of both. When members are accustomed to receiving the rich level of benefits with the group Medicare plans as they had pre-retirement that change will be difficult. Members forced into a Medicare plan that will cost more and provide less will be a difficult experience.? ?