New benefit shifts responsibility to drugmakers and insurers

The overhaul of Medicare’s prescription drug benefit is an attempt to decrease patients’ and Medicare’s cost burden while increasing how much insurers and drugmakers are on the hook for when it comes to Part D drugs. Although Medicare is a federal program, seniors get coverage through private insurers.

Under the current design, Medicare spent $52 billion, or nearly half of all Part D dollars on the roughly 2 percent of beneficiaries that are taking expensive medications.

“It really boils down to a basic problem with the original design of the Part D benefit,” said Juliette Cubanski, Deputy Director of Medicare Policy for the Kaiser Family Foundation (KFF). “For both patients and for the Medicare program, the risk is completely open ended.”

Much of the risk rebalancing starting in 2025 will happen after patients reach that $2,000 spending threshold. The new benefit decreases costs to the Medicare program to 20 percent, down from 80 percent. Meanwhile drugmakers will now be required to give a 20 percent discount on the sticker price of drugs. Insurance companies will be responsible for 60 percent of drug costs, four times their current responsibility.

That’s intended to create incentives for insurers to negotiate harder with drug manufacturers for lower prices.

As insurer risk increases, companies will likely look to other levers to control costs. The new IRA rules limit annual premium increases to 6 percent per year.

But Cubanski warns that insurers could potentially slim down benefits. Insurers also could limit the list of drugs they cover or more tightly control which medications patients take. That could make it harder for seniors to get the drugs they need.

“Medicare beneficiaries overall, they’re getting a much better benefit in terms of their out-of-pocket cost exposure,” Cubanski said of Part D’s shift to more financial responsibility for insurers. But she cautions seniors could also be giving up easy access to more types of drugs with zero deductibles and low premiums.

While the new spending limit is likely to raise insurance company costs, it could be a boon to drugmakers.

“Drug manufacturers love the cap,” Cubanski said, “making drugs more affordable for patients means they’ll be less likely to skip doses.”

While demand for prescription drugs is expected to increase, the new Part D law includes other provisions aimed at reining in drug prices that could limit revenue for manufacturers. Those include giving Medicare the power to negotiate drug prices and penalizing drugmakers for hiking prices faster than inflation.

One potential consequence that Cubanksi and others are watching for is higher launch prices for new drugs.

While seniors will be shielded from those high prices with the new cap, they could face other challenges, including higher premiums and skimpier benefits as insurance companies look to limit their expenses.

Tradeoffs coverage of issues facing older Americans is supported in part by The SCAN Foundation — advancing a coordinated and easily navigated system of high-quality services for older adults that preserve dignity and independence.