Inflation Reduction Act of 2022 Medicare Changes
When I meet with prospective clients, I begin with a brief explanation of Medicare. Then move on to the hundreds of plans. Drugs are next. This is hard. Clients must lay down their cards; some hold a straight flush of costly medications.
The Inflation Reduction Act of 2022 is a long-awaited solution to improve Medicare drug plans and make Part D affordable for those on costly medications.
Inflation Reduction Act of 2022 Deals with Medicare Drug Changes
When Medicare Part D was first established, Medicare contracted with private plan sponsors to provide the prescription drug benefit. The private insurance company created the Part D Prescription Drug Plans (PDP), sold the PDPs, and managed the PDPs. Each company negotiated separately with the pharmaceutical companies the price of the medications and which medications would be included on the plan formularies–the list of authorized drugs.
The insurance companies had the leverage of their brand and how many customers they would bring to the pharmaceutical companies. They were also competing with the other insurance companies to get more medications at the lowest cost. The pharmaceutical companies, of course, were trying to maximize their revenues and profits.
Ideally, it was hoped that the competition and freedom of the market would keep prices low. However, patent laws create a temporary monopoly for pharmaceutical companies that develop these very effective and popular new drugs. The patent, and the consequent monopoly, benefit the nation and the world with the newest and best medications. Unfortunately, it is a substantial financial burden for those who need the medication.
The Inflation Reduction Act Creates Leverage for Medicare
When Part D was created in 2004, a law was established known as “non-interference.” Non-interference means that the Secretary of Health and Human Services (HHS) cannot negotiate drug pricing with pharmaceutical companies, pharmacies, and insurance companies. Instead, the prices would be determined exclusively between the insurance companies, pharmaceutical companies, and pharmacies competing amongst one another.
With the Inflation Reduction Act of 2022, Medicare changes the law. The Secretary of HHS is granted a narrow exception to the non-interference clause. The HHS Secretary can negotiate on behalf of the 84 million Medicare and 76 million Medicaid beneficiaries for the lowest prices for a very limited number of costly prescriptions. The category of medications is single-source brand-name drugs or biologics without generic or biosimilar competitors.
Inflation Reduction Act of 2022 Effects Medicare Change in 2026
The Drug Price Negotiation Program begins in 2026 and is limited to 10 Part D drugs. Another 15 Part D drugs will be added in 2027, 15 Part D in 20228, and 20 Part in 2029. The HHS Secretary will select the drugs from among the 50 highest total cost Part D medications.
The timeline for the negotiation process will span roughly two years. For those companies that do not comply, there is an excise tax. The tax penalty starts at 65% of the product sales in the U.S. and increases by 10% every quarter to a maximum of 95%. The other option is that company can remove all its medications from the Medicare and Medicaid market.
Is the CBO Accurate, Reliable, & Trustworthy?
The Congressional Budget Office (CBO) claims HHS Secretaries’ ability to negotiate prices with Part D producers will significantly reduce what Medicare spends over the next ten years. The CBO also claims that reducing the revenue to pharmaceutical companies will have little effect upon developing new and better drugs. These are all projections and opinions to support the policy change. There is no evidence.
Drug Manufacturers Are Penalized for Inflation
The Inflation Reduction Act of 2002 adds another Medicare change. The Act requires drug manufacturers to pay a rebate to Medicare if prices for single-source drugs covered under Medicare Part B and nearly all covered frugs under part D increase faster than the rate of inflation reflected by the Consumer Price Index (CPI). The rebate dollars will be deposited in the Medicare Supplementary Medical Insurance (SMI) trust fund.
Cap Out-of-Pocket Part D Spending
Medicare Part D currently provides catastrophic coverage for high out-of-pocket drug costs. Still, there is no limit on the total amount beneficiaries pay out of pocket each year. Under the current design, Part D enrollees qualify for catastrophic coverage when the amount that they pay out of pocket plus the value of the manufacturer discount on the price of brand-name drugs in the coverage gap phase exceeds a certain threshold amount. Enrollees with drug costs high enough to exceed the catastrophic threshold must pay 5% of their total drug costs above the threshold until the end of the year. This can be huge.
The Inflation Reduction Act of 2022 amends Medicare’s design of Part D. For 2024, the law eliminates the 5% coinsurance requirement above the catastrophic coverage threshold, effectively capping out-of-pocket costs at approximately $3,250 that year.
The legislation adds a hard cap on out-of-pocket spending of $2,000 per person in 2025. How this will be funded, other than with savings, is still being determined.
Inflation Reduction Act of 2022 Puts Medicare Insulin at $35
Insulin is probably the most common high-dollar medication that burdens many Medicare beneficiaries. Most plans relieve several insulin products, beginning with the Trump Administration and now Biden.
Currently, Medicare beneficiaries can choose to enroll in a Part D plan participating in an Innovation Center model in which enhanced drug plans cover insulin products at a monthly copayment of $35 in the deductible, initial coverage, and coverage gap phases of the Part D benefit.
Participating plans do not have to cover all insulin products at the $35 monthly copayment amount, just one of each dosage form and insulin type (rapid-acting, short-acting, intermediate-acting, and long-acting).
While Medicare is incredible health insurance, Part D prescription drug plans are the weakness because of the light coverage for higher-end medication. The Inflation Reduction Act of 2022 helps Medicare better service citizens with more reasonably priced medications.
We can ensure you have the plan that best covers your prescription drug needs at the lowest possible cost.
Call 402-614-3389 to speak with an experienced and licensed agent and insurance professional.
