Medicare Part D beneficiaries projected to pay lower out-of-pocket costs

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Recent legislation establishing a $2,000 out-of-pocket cap in Medicare Part D has the potential to lower out-of-pocket costs for more than 125,000 Part D beneficiaries who use ultra-expensive drugs and are ineligible for low-income subsidies, according to a new analysis in JAMA Health Forum.

This provision of the Inflation Reduction Act, the study said, would ameliorate the increases in out-of-pocket spending during a transition from commercial insurance to Part D. Medicare Part D beneficiaries without low-income subsidies spent 2.5 times more out of pocket on ultra-expensive drugs in 2019, and were subject to greater variation in this spending compared with commercially insured patients aged 45 to 64.

"Ultra-expensive" drugs are defined as drugs that have a mean annual total spending per person that is greater than the U.S. gross domestic product per capita.

While the IRA cap, which goes into effect in 2025, would likely help those who are switching from commercial high-deductible health plans to Medicare Part D, these ultra-expensive medications are placing increasing financial hardships on commercial health insurance plans, the study found, evidenced by the more rapidly increasing out-of-pocket costs in that population.

"Although commercial enrollees may pay less for these drugs, they can face a range of burdensome coverage restrictions," authors wrote.

WHAT'S THE IMPACT?

Substantial variation was found between plan types in the number of ultra-expensive drugs in use. Although more ultra-expensive drugs are used in Part D stand-alone prescription drug plans, out-of-pocket spending on these drugs is not statistically significantly different than in Medicare Advantage Prescription Drug (MAPD) plans. 

Because MAPD plans receive capitated payments, they have reason to opt for lower cost sharing to promote greater drug adherence. Doing so is cheaper than covering the medical care otherwise required to address the symptoms or complications of chronic conditions. But the use of this strategy for ultra-expensive drugs was not common.

Among commercial plans, the lower number of drugs represented among HMOs may reflect coverage decisions that make these plans unattractive to patients who use particular ultra-expensive drugs. For commercial high deductible health plans, the smaller number of drugs may also reflect a selection effect against these plans by patients receiving particular drugs, or patients not filling prescriptions due to their very high out-of-pocket cost – a phenomenon for which there is recent evidence.

The $2,000 out-of-pocket cap in the IRA has the potential to substantially lessen these shocks in out-of-pocket spending when moving from commercial insurance to Part D coverage. The present 20% sample of 2019 Part D beneficiaries includes 25,029 beneficiaries using ultra-expensive drugs who paid at least $2,000 out of pocket, suggesting that more than 125,000 Part D beneficiaries nationally who use ultra-expensive drugs would have benefited from the IRA out-of-pocket cap in 2019.

Given the consistent increase over time in the number of ultra-expensive drugs, even more beneficiaries are likely to be helped by the cap when it is implemented in 2025 and in subsequent years, the analysis projected. Lowering out-of-pocket costs may also increase utilization of ultra-expensive drugs or other medications prescribed to those who use these drugs. While this may improve patient outcomes, it also has the potential to increase overall Medicare spending.

THE LARGER TREND

Medicare Part D may be the target of reforms, but a January analysis from consulting firm Avalere has found that beneficiaries may still face challenges when it comes to affording their medications.

Those most at risk of continued affordability challenges could include beneficiaries with limited income who do not receive cost sharing support through the low-income subsidy; those who, in 2024, have high out-of-pocket (OOP) costs in a short period of time before the OOP smoothing program launches; and those who, in 2025, incur most of their OOP costs later in the plan year (due to a new diagnosis, for example) when the horizon of time for smoothing OOP costs is reduced.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com