When Pam McClure heard she would save nearly $4,000 on her prescription medications next year, she said, “It sounded too good to be true.” She and her husband are both retired and living on a “very strict” budget in central North Dakota.
By the end of this year, she will have spent nearly $6,000 on her medications, including one to control her diabetes.
McClure, 70, is one of them approximately 3.2 million people with Medicare drug insurance that will cap out-of-pocket drug costs at $2,000 in 2025 due to the Biden administration’s Inflation Reduction Act 2022, according to an Avalere/AARP study.
“It’s amazing – oh my god. We could actually live,” McClure said. “Maybe I can afford fresh fruit in the winter.”
The IRA, a climate and health care law that President Joe Biden and Vice President Kamala Harris promoted during the campaign as one of their administration’s biggest achievements, radically redesigned Medicare’s drug benefit, called Part D, which covers about 53 million people aged 65 and over. or with a disability. The government estimates that about 18.7 million people will save about $7.4 billion next year alone as a result of the cap on out-of-pocket spending and the less publicized changes.
The annual enrollment period for Medicare beneficiaries extend or change the coverage of medicines or to choose a Medicare Advantage plan, began October 15 and runs through December 7. Medicare Advantage is the commercial alternative to traditional, government-run Medicare, covering medical care and commonly prescribed medications. Medicare’s standalone drug plans, which cover medications typically taken at home, are also administered by private insurance companies.
“We always encourage beneficiaries to really look at the plans and choose the best option for them,” Chiquita Brooks-LaSure, head of the Centers for Medicare & Medicaid Services, told KFF Health News. “And it is especially important to do that this year, because the benefit has changed so much.”
The IRA’s required improvements in Medicare drug coverage are the most dramatic changes since Congress added the benefit in 2003, but most voters don’t know about them. KFF surveys have shown. And some beneficiaries may be surprised by a downside: premium increases for some plans.
CMS said on September 27 that the average Medicare drug premium nationwide fell about $1.63 per month – about 4% – from last year. “People enrolled in a Medicare Part D plan will continue to see stable premiums and will have wide choices of affordable Part D plans,” CMS said in a statement.
However, an analysis by KFFa health information nonprofit to which KFF Health News belongs, found that “many insurers are increasing their premiums” and that major insurers, including UnitedHealthcare and Aetna, have also reduced the number of plans they offer.
The first premium proposals for 2025 from many Part D insurers were even higher. To cushion the price shock, the Biden administration created a so-called demonstration program to pay insurers an additional $15 per month per beneficiary if they agreed to limit premium increases to no more than $35.
“Without this demonstration, premium increases would certainly have been larger,” Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, wrote in her Oct. 3 analysis.
Nearly every Part D insurer agreed to the arrangement. Republicans have criticized it, questioning the authority of the CMS to make the extra payments and call them a political ploy in an election year. CMS officials say the administration has taken similar steps in implementing other Medicare changes, including under President George W. Bush, a Republican.
In California, for example, Wellcare’s popular Value Script plan went from 40 cents per month to $17.40. The Value Script plan in New York went from $3.70 per month to $38.70, a more than tenfold increase – and exactly an increase of $35.
Cubanski identified eight plans in California that increased their premiums by exactly $35 per month. KFF Health News found that premiums rose for at least 70% of drug plans offered in California, Texas and New York and for about half of plans in Florida and Pennsylvania – the five states with the most Medicare beneficiaries.
Spokespeople for Wellcare and its parent company Centene Corp. did not respond to requests for comment. In a statement this month, Centene’s senior vice president of clinical and specialty services, Sarah Baiocchi, said Wellcare would offer the Value Script plan without premium in 43 states.
In addition to the $2,000 drug spending limit, the IRA limits Medicare co-payments for most insulin products to no more than $35 per month and allows Medicare to negotiate the prices of some of the most expensive drugs directly with pharmaceutical companies.
It will also eliminate one of the most frustrating features of the drug benefit, a gap known as the “doughnut hole,” which suspends coverage just as people face rising drug costs, forcing them to pay the full price of the plan to pay out of pocket for medications until they reach a spending threshold that changes from year to year.
The law also expands eligibility for “extra help” subsidies for approximately 17 million low-income people in Medicare drug plans and increases the amount of the subsidy. Pharmaceutical companies will have to contribute to help pay for this.
From January 1, the redesigned drug benefit will work more in the same way as other private insurance policies. Coverage begins after patients pay a deductible, which will not exceed $590 next year. Some plans offer a smaller or no deductible, or exclude certain drugs, usually low-cost generics, from the deductible.
After beneficiaries spend $2,000 on deductibles and copays, the rest of their Part D drugs are free.
That’s because the IRA increases the portion of the bill picked up by insurers and pharmaceutical companies. The law also attempts to curb future increases in drug prices by limiting increases to consumer price inflation 3.4% in 2023. If prices rise faster than inflation, drug makers must pay Medicare the difference.
“Before the redesign, Part D encouraged drug price increases,” says Gina Upchurch, a pharmacist and executive director of Senior PharmAssist, a Durham, North Carolina-based nonprofit that counsels Medicare beneficiaries. “The way it is designed now places more financial obligations on the plans and manufacturers, putting pressure on them to help control prices.”
Another provision in the law allows beneficiaries to pay for the drugs on installments, instead of having to pay a large bill in a short period of time. Insurers are expected to calculate this and send policyholders a monthly bill, which will be adjusted if medications are added or removed.
Along with the big changes brought about by the IRA, Medicare beneficiaries need to prepare for the inevitable surprises which come as insurers revise their plans for a new year. In addition to raising premiums, insurers can drop covered drugs and remove pharmacies, doctors or other services from provider networks that beneficiaries must use.
If you miss the opportunity to switch plans, coverage will automatically renew even if it costs more or no longer covers needed medications or preferred pharmacies. Most beneficiaries are locked into full-year Medicare drug and Advantage plans unless CMS gives them a “special enrollment period.”
“We have a system that is managed through private health care plans,” CMS Chief Brooks-LaSure said. But she noted that beneficiaries “have the opportunity to change their plans.”
But many don’t take the time to compare dozens of plans that may cover different medications at different prices from different pharmacies — even if the effort could save them money. In 2021, only 18% of Medicare Advantage drug plan participants and 31% of standalone drug plan participants have checked the benefits and costs of their plan against competitors,” KFF researchers found.
For free, unbiased help selecting drug coverage, contact the State Health Insurance Assistance Program at shiphelp.org or 1-877-839-2675.
KFF Health News is a national newsroom that produces in-depth journalism on health issues and is one of the key operating programs at KFF – an independent source of health policy research, polling and journalism. Learn more about KFF.
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