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How Will the Inflation Reduction Act Just Passed by Senate Democrats Affect the Price You Pay for Part D Prescriptions?

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Just when we all thought there would be no big legislation coming out of the nation’s capital before the mid-term elections, the Senate Democrats pulled an August surprise out of their legislative hat. By the narrowest of majorities, on a 51-50 vote, they passed the Inflation Reduction Act. The bill now heads to the Democratically-controlled House of Representatives where passage is expected.

We’ll save the economics of the new law for another Blog column. Meanwhile, one issue that has attracted quite a bit of attention is how the Act will affect seniors, particularly those taking prescription drugs under Medicare Part D.  As this article on the Stat news website explains, there seem to be aspects of the Inflation Reduction Act that will lower the prescription bills for seniors and also pave the way for more competitive drug pricing in the future, and that (we think) is good news.

Lower Prescription Costs on the Horizon

“Millions of patients in the Medicare program could eventually see lower prescription drug costs if Democrats pass their latest drug pricing plan into law,” says the Stat article, written by reporter Rachel Cohrs. She explains that there are at least four chief ways in which the new law curbs drug costs: “it would allow Medicare to negotiate prices for some costly drugs, penalize drugmakers for hiking prices faster than inflation, redesign Medicare’s prescription drug benefit and cap annual costs at $2,000, and cap Medicare patients’ insulin costs at $35 per month.”

Some of these provisions won’t kick in immediately, the article notes. “Those changes won’t take effect right away. Most wouldn’t take effect until 2024; negotiated drug prices won’t be in place till 2026. The cap on insulin costs comes a little sooner, in 2023. And drugmakers that hike their prices would face penalties starting in October.”

Democrats Had Hoped for a Bigger Bill

The new law represents a compromise among progressive Democrats on one side (think Bernie Sanders of Vermont) and conservative Dems on the other (think Joe Manchin of West Virginia). Democrats had originally hoped for a more sweeping overhaul of drug pricing reforms helping even more seniors, but, as the Stat article relates, “two major provisions that would have affected people who get insurance through their jobs ran afoul of Senate rules.” (Legislators had wanted to extend caps on drug price hikes and on insulin costs to people covered by employer plans, not only Medicare Part D, but rule-makers nixed the idea as beyond the scope of what could be passed by simple majority.) “That means,” says Cohrs, “most of the patients who will directly benefit from the policy are adults 65 and older who are in the Medicare program.”  

One variable in the mix is how these more generous benefits will affect Medicare insurance premiums. The Stat article warns that, as Medicare’s benefits get more generous and more patients can afford drugs, spending may go up and premiums may be affected.

“The premium effect is really difficult to predict, almost more difficult than the effect on drug prices,” Juliette Cubanski of the Kaiser Family Foundation told Cohrs. As the article further explains, “The legislation would cap premium increases at 6 percent per year through 2029 to help decrease the impact, but it’s possible in the short-term that some beneficiaries could pay more for premiums than they would save.”

Is There a Cloud in the Silver Lining

As the old saying goes, for every action there’s an equal and opposite reaction. In this case, some have expressed fears that, as costs have dropped for some patients, Big Pharma will hike costs for others to make up the lost revenue.

“None of the policies in Democrats’ package would directly affect people who get insurance through their jobs, or through Affordable Care Act marketplaces,” Stat writes. “There’s a raging debate over whether the pharmaceutical industry will charge these patients more to make up for lost money, or whether cost controls in Medicare could set a precedent for other insurers to demand lower prices, as well.” Similarly, no one can clearly predict how or if the new law will affect drug costs for Medicaid patients, potentially leaving states with a bigger drug cost burden.

Biggest Winners: Medicare Patients with Costly Prescriptions

As Cohrs explains, “The most obvious benefit is in the part of Medicare that covers drugs sold in pharmacies, Part D, where the reform package would cap patients’ annual out-of-pocket costs at $2,000 and spread them throughout the year, starting in 2024.” Estimates vary on exactly how many people could benefit.

“ Kaiser Family Foundation analysts found that 1.4 million people with traditional Medicare benefits spent $2,000 or more in 2020,” Cohrs writes. But some say the number is more than twice that. “An estimate co-authored by Sean Dickson, director of health policy at the West Health Policy Center, found that if a $2,000 out-of-pocket cap had been instituted in 2021, at least 3.1 million patients would have seen savings.”

Medicare experts are quick to add that, while seniors spending over $2,000 per year on prescriptions are the first to benefit, other provisions kicking in later will help many more beneficiaries.  “People should be really excited,” Vanderbilt University professor Stacie Dusetzina told Stat. “Medicare Part D has been an incredibly beneficial program for older adults.” She argues that negotiated costs could drive down future drug bills, and even in a worst-case scenario seniors will be protected by the $2,000 cap.  

Low-income Beneficiaries Also Receive Attention

According to the article, the new law includes a change to Medicare’s low-income drug benefits, which Stat calls “a provision that has flown a bit under the radar.”

“Right now,” Cohrs writes, “Medicare enrollees who make between 135 percent and 150 percent of the federal poverty level get some help from the federal government for their drug costs, but they still have to pay 15 percent of the prices of their drugs.” (For 2022, 150 percent of the federal poverty level for a single person is $20,385 per year.) But under the new law, people making up to 150 percent of the federal poverty level will receive full benefits beginning in 2024, giving them what Stat calls “a set, low cost for each prescription instead of paying a percentage of the full price.”

According to the Kaiser Family Foundation, this expansion will benefit about 400,000 people based on 2020 figures. But Kaiser’s Dusetzina said there may be more patients out there who are eligible, but not enrolled. “This is a really big deal because by definition, these patients are near poor but still have high cost-sharing,” Dusetzina told Stat.

Insulin Costs and Inflation Caps

In two more rules that are sure to be popular with Part D beneficiaries, Democrats addressed “the two i’s” – insulin and inflation.

“The [new] drug pricing plan would also force all plans in Medicare to offer insulin at a maximum of $35 per month for patients starting next year,” Cohrs writes. This directly affects roughly 25 percent of Medicare patients who still paid more than that for insulin in 2021.

On the inflation front, the law will penalize drugmakers who hike prices faster than inflation. This, says the article, “would provide more predictable prices for Medicare patients.” The inflation cap is the first provision of the new law to go into effect, with penalties starting in October for pharmacy drugs, and in January for drugs that are administered in doctors’ offices.

“It’s hard to predict the future of which drugs would have seen dramatic price spikes,” Cohrs writes, “but similar to the annual cost protections, it allows more predictability for Medicare patients.” But a peek behind the scenes shows that the impact could be significant. “Half of drugs covered by Medicare took price hikes steeper than inflation in 2020, according to a Kaiser Family Foundation analysis.”

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(originally reported at www.statnews.com)

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