Medicare Offers Subsidies to Stabilize Premiums

Medicare is offering substantial subsidies to private insurers to keep prescription-drug plan premiums stable as the elections approach.

Why it matters: The move is part of broader efforts under the Inflation Reduction Act to lower drug prices and reduce drug costs for seniors and the federal government.

The details:

• The Act includes policies such as capping annual out-of-pocket drug costs for seniors, limiting their monthly insulin expenses, and allowing Medicare to negotiate drug prices.
• Starting next year, insurers will be required to cover a much larger share of seniors’ catastrophic drug costs, which are out-of-pocket costs exceeding $2,000.
• Previously, the federal government covered the majority of these costs.

Lawmakers are calling on the Government Accountability Office (GAO) to review the Medicare Part D Premium Stabilization Demonstration, questioning its legality and potential impact on health care affordability for seniors.

What they’re saying:

• “The initiative lacks any budgetary analysis, clear statutory basis, or credible research goals. The integrity of the Medicare program and the taxpayer dollars that finance its benefits demand more than partisan aspirations to justify extra-statutory, eleventh-hour policy changes,” the lawmakers wrote in a letter to GAO.
• “The policies advanced through the recently announced demonstration would simply shift costs from plan sponsors and enrollees to taxpayers, obscuring the law’s impacts without addressing their underlying drivers,” they added.

The challenges: Despite efforts to mitigate impacts, the Administration’s measures may not be enough to shield seniors from the effects of recent policy changes.

The background: Traditionally, average premiums for Medicare Part D have remained stable, but the first year of recent changes saw an increase in premiums.

What’s next: After the upcoming election, lawmakers will face difficult decisions to balance protecting seniors and sustaining innovation in the medical field. Bipartisan reform and modernizing the Part D program could provide a path forward.

Full story

Medicare officials are offering private insurers substantial subsidies to keep premiums for prescription-drug plans stable as the elections approach. This move comes as part of broader efforts under the Inflation Reduction Act, passed by Democrats in 2022, to make significant changes to Medicare’s drug benefit, known as Medicare Part D. These changes aim to lower drug prices and reduce drug costs for both seniors and the federal government.

Key policies under the Act include capping annual out-of-pocket drug costs for seniors, limiting their monthly insulin expenses, and allowing Medicare to negotiate drug prices. Lesser-known changes that impact insurers include the requirement for insurers to cover a much larger share of seniors’ catastrophic drug costs. Starting next year, these are out-of-pocket costs that exceed $2,000.

Previously, the federal government covered the majority of these costs. These moves are part of a strategy to maintain stability in prescription drug plan premiums, especially significant as the election season approaches. Lawmakers are calling on the Government Accountability Office (GAO) to review the Medicare Part D Premium Stabilization Demonstration recently announced by the Centers for Medicare & Medicaid Services (CMS), noting its dubious legality and the danger it poses to health care affordability for seniors.

The effort comes as part of a letter to GAO from House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA), Senate Finance Committee Ranking Member Mike Crapo (R-ID), and House Ways and Means Committee Chair Jason Smith (R-MO). Through new taxpayer-financed policy adjustments, the demonstration seemingly intends to deflate seniors’ premiums that are otherwise slated to increase dramatically following the Inflation Reduction Act’s drug price provisions. However, the agency has not produced any budgetary analysis and appears to lack a clear statutory basis or credible research goals for the proposal.

Rodgers, Crapo, and Smith request that GAO review the demonstration’s legality under section 402 of the Social Security Amendments of 1967, what budgetary analysis CMS undertook in developing the demonstration, and the estimated budgetary impact of the demonstration. The Health and Human Services (HHS) and the Center for Medicare and Medicaid Services (CMS) have found themselves at the center of controversy as they try to shield seniors from the effects of recent policy changes. Despite efforts to mitigate impacts, the Administration’s measures may not be enough.

Under Medicare Part D, insurance plans submit annual bids to CMS to offer prescription drug coverage to beneficiaries. These bids detail the benefits provided and the associated costs. Traditionally, average premiums derived from these bids have remained stable, even showing declines in some years.

However, the first year of recent changes saw an increase in premiums.

medicare subsidies keep premiums stable

Policymakers and insurance companies had warned that this year could bring even worse outcomes, but these warnings largely went unheeded.

Contrary to public predictions, the final bids revealed stark realities. CMS responded by delaying the announcement of premiums and instead unveiling a three-year Premium Stabilization Demonstration. This program, announced just 100 days before a Presidential election, aims to temper inflationary effects by injecting taxpayer dollars into the system.

The last-minute roll-out of this demonstration program and the lack of transparency from CMS has raised concerns. Plans must now decide whether to participate, a decision complicated by CMS’s hasty actions and the increasing costs predicted by plans. The demonstration allows CMS to assume a greater share of costs temporarily, easing the immediate financial burden on seniors.

The increase in the cost of providing benefits has been significant. Announcing these premium hikes just before the Democratic Convention would have been politically damaging, leading to the Premium Stabilization Demonstration as a stopgap measure. This program will delay the publication of premiums until mid-September.

Looking ahead, CMS has acknowledged that the Premium Stabilization Demonstration is not a long-term fix. With the Drug Price Negotiation scheme set to take effect in 2026, further complications are expected. This scheme will replace negotiated discounts between plans and drug companies with government-mandated pricing, potentially driving premiums higher.

After the upcoming election, lawmakers will face difficult decisions. If the demonstration expires without a replacement, Medicare Part D could become prohibitively expensive for many seniors, risking the program’s viability. Alternatively, increasing taxpayer spending to subsidize premiums may become necessary.

Congress must scrutinize how much this demonstration will add to the deficit and seek solutions that strike a balance between protecting seniors and sustaining innovation in the medical field. Bipartisan reform and modernizing the Part D program to handle today’s therapeutic advancements could provide a path forward. Joe Grogan, a nonresident senior scholar at the USC Schaeffer Institute and former domestic policy adviser to President Trump, underscores the importance of prioritizing seniors’ welfare and the nation’s leadership in medical innovation.