Biden is successfully preventing an increase in Medicare drug plan premiums from occurring.
The projected Part D health plan premiums are set to be unveiled this month. To prevent a substantial increase in premiums just before the upcoming election, the Biden administration is supplying insurance companies with substantial new subsidies, potentially amounting to around $5 billion annually. This initiative, executed without requiring congressional approval, has sparked disapproval from several Republican legislators.
Medicare beneficiaries will commence selecting plans in mid-October during the annual enrollment period. Approximately 13.3 million people are enrolled in Part D plans, paying an average of $43 per month for coverage in 2024, according to KFF.
The anticipated surge in premiums wasn't surprising. It originates from revisions to the Medicare drug benefit present in the Democrats' 2022 Inflation Adjustment Act. In addition to the $2,000 limit, the law mandates that insurance providers should shoulder more of the costs upon reaching the catastrophic coverage phase surpassing the cap.
Starting in January, insurance providers will cover 60% of drug costs, with Medicare and drug manufacturers splitting the remaining 40% for brand-name drugs and Medicare covering the entire 40% for generic medications. However, prior to the IRA’s modifications, plans were only responsible for 15% of the costs, with beneficiaries paying 5% and Medicare covering the remaining 80%.
“Due to the plan's design, the insurers will incur significantly more liability and responsibility,” said Angela Lamari, an analyst at Capstone, a Washington-based firm that advises investors and corporations on public policy. “Consequently, the bids this year are substantially greater than any year before.”
The subsidy program, a component of a Medicare demonstration project to test innovations in payments or reimbursement methods, will grant participating insurers an extra $15 per member per month. The insurers will cap monthly premium hikes to $35 from the previous year. (The Inflation Adjustment Act already restrained their capacity to raise premiums.) Moreover, Medicare will minimize the exposure insurers face from beneficiaries with high drug expenses.
“If they end up with an exceptional number of high-risk patients, they will receive extra subsidies from the government for the associated expenses,” James Capretta, senior fellow at the right-leaning American Enterprise Institute, said regarding insurance providers.
These protections are coupled with a significant increase in Medicare’s average direct subsidy to Part D plans of roughly $143 for 2025, up from less than $28 this year. This signifies a shift to Medicare paying insurers upfront for providing fundamental drug benefits, instead of paying them retroactively to cover high-cost enrollees in the catastrophic coverage phase.
The demonstration program, which will run up to three years, does not affect prescription drug coverage within Medicare Advantage plans, which offer a broader range of health coverage and can manage premium increases more effectively by altering other benefits or utilizing other government funding, experts claimed.
The Centers for Medicare and Medicaid Services highlighted in a press release that the Inflation Adjustment Act introduced the most substantial modifications to the drug program since its inception in 2006. Providing premium stability may enhance the predictability of plan offerings for enrollees and “enhance the efficiency of the transition” for both beneficiaries and insurers, the agency added, mentioning that it initiated similar demonstrations in the past, including after the Part D program launched in 2006.
“The Part D Premium Stabilization Demonstration is about ensuring that individuals with Medicare continue to save money on their drug expenses while having stable, affordable prescription drug plan options,” the agency stated in a statement. “It is also consistent with other demonstrations that CMS has conducted in the past to address transitional issues related to the implementation of major changes to the Medicare program.”
Republican discontent
Republican legislators are referencing the Biden administration's move as another instance of the Inflation Adjustment Act's failure, which many Republicans have expressed an interest in repealing. They contend that the law might make it more difficult for senior citizens to afford and access medications, as well as cost the federal government billions to rectify the IRA's shortcomings.
“One of @POTUS’s prominent domestic accomplishments is set to cause a considerable rise in Medicare premiums for millions of Americans just before the November election,” Republican Sen. Bill Cassidy of Louisiana stated last month on social media, regarding Biden. “Now, his administration is preparing to distribute billions of dollars to private insurance companies...”
Other lawmakers have requested the Congressional Budget Office to evaluate the cost of the subsidy program and the Government Accountability Office to assess whether the program bypasses Congress inappropriately.
“We are concerned that a new hastily implemented demonstration program will result in an unchecked taxpayer-funded bailout to mask the deficiencies in the Inflation Adjustment Act,” leading Republican lawmakers on five House and Senate committees wrote to the CBO last month.
Another possible reason for the Biden administration's endeavor to prevent a surge in Part D drug plan premiums, Capretta stated, is to prevent senior citizens from shifting to Medicare Advantage policies, which enroll around half of Medicare beneficiaries presently and typically offer drug coverage at lower or no premiums. The administration has been making an effort to contain the increasing costs associated with Medicare Advantage.
“Given the administration's recent focus on curbing MA costs, that would be an ironic secondary effect of IRA implementation,” Capretta wrote in a post last month.
The ongoing debate in politics surrounding the Biden administration's subsidy program for insurance companies has been a point of contention. Several Republican legislators criticize this move as an unchecked bailout and an attempt to save face before the upcoming election, as they believe it could make Medicare premiums more expensive and difficult for seniors to afford.
The inflation in Part D health plan premiums, attributed to revisions in the Democrats' 2022 Inflation Adjustment Act, has sparked political discussion about the affordability and accessibility of medications for senior citizens.
