In August of 2022, the Inflation Reduction Act (IRA) was signed by President Biden.  This bill had several provisions related to Medicare Drug Pricing with good intentions.  Some of the big changes which take effect in 2025 are:

• Maximum out of Pocket of $2,000
• Medicare Prescription Payment Plan

Maximum out of Pocket of $2,000
In 2024, the maximum drug costs for most Medicare Beneficiaries was capped at roughly $3,300. In 2025, the maximum drug costs will be capped at $2,000 for Medicare Part D.  About 2.5% of Medicare Beneficiaries will benefit from this $2,000 cap.

Medicare Prescription Payment Plan (MPPP)
There is also a new “Payment Plan” option for Part D in 2025.  This program will NOT reduce drug costs, but it allows beneficiaries to spread their drug cost throughout the year. Again, this will help a very small percentage of Medicare beneficiaries – those that have very expensive drug costs (e.g. $2,000) and can’t afford to spend the $2,000 over a couple of months thus need to spread it out over the 12 months.  Most states have prescription assistance programs (e.g. NJ PAAD) that would be more beneficial and actually reduce drug costs, rather than spread the costs throughout the year.

Unintended Consequences
These 2025 changes will shift significant costs to the Part D Carriers which results in some unintended consequences.

• Part D Premium Increases
• Limited Agent Support

Part D Premium Increases
Shifting all this incremental drug cost and administrative burden (MPPP) to the Part D Plans is expected that result in large premium increases for these Part D Plans.  The premium is the monthly cost for the Part D Plans.  So even though about 2.5% of Beneficiaries will benefit from this $2,000 cap on drug costs, the other 97% of beneficiaries are expected to have large Part D Premium increases as well.

The government realized these large premium increases were coming for 2025 Part D Plans. So, on July 29, 2024, Centers for Medicare and Medicaid Services (CMS) announced a voluntary premium stabilization demonstration which is essentially an additional subsidy to the Part D Carriers if the Carriers agrees to lower their Part D Premium increases.  This program is estimated to cost $10s of Billions which is essentially just shifting costs back to the taxpayer.  The name of the legislation (Inflation Reduction Act) seems to be ironic as it is increasing costs/inflation rather than reducing.

On August 6, 2024, some members of Congress sent a letter to the Government Accountability Office (GAO) for an expedited review of this voluntary premium stabilization program because “The initiative lacks any budgetary analysis, clear statutory basis, or credible research goals.”

As of the time we are writing this article, this whole situation still seems to be up in the air just a few weeks away from the 2025 Part D Plans being released on October 1.

Limited Agent Support Going Forward on Part D Plans
We handle thousands of Part D reviews each year during the Annual Enrollment Period (Oct 15 – Dec 7).  This is a part of our process /service that we take a lot of pride in.  Over the last five years, we have saved our clients over $14 million doing the Part D reviews and recommendations.

In prior years, we would receive a small compensation from the Carriers to assist people with their Part D enrollments (about $3-$4/month per Part D Plan on average). This was a nominal commission, but it allowed us to bring on staff to provide this great service to thousands of Beneficiaries, thus saving them millions of dollars.

One of the consequences of this IRA cost-shifting is that the majority of the Part D carriers/plans have decided to stop compensating Agents on the Part D Plans.  This will severely limit our ability to handle Part D reviews for Medicare beneficiaries. 

For 2025, we have made the difficult business decision to continue to handle these Part D reviews and recommendations for our Medicare supplement clients only.  This will significantly reduce the number of Beneficiaries we are able to help in 2025.  Also, since the Part D plans are not working with Agents, the clients will need to call the Part D plans directly for any questions / issues that come up throughout the year.

In Summary, there were good intentions in the IRA to reduce drug spending for Medicare beneficiaries; and this $2,000 cap will likely help about 2-3% of Medicare Beneficiaries.  However, there are significant costs associated with this change which will significantly impact all Medicare Beneficiaries (and other American taxpayers).