The IRA’s Impact on Medicare Part D

The Inflation Reduction Act (IRA) will have a significant effect on Medicare Part D, both in terms of beneficiaries’ out-of-pocket (OOP) costs and stakeholder liability within the Part D benefit.

Patient OOP Costs

The IRA Part D redesign provision will lower prescription drug cost-sharing for pharmacy benefit drugs in two phases. First, beginning in 2024, beneficiaries will no longer pay any cost-sharing in the “catastrophic” phase (currently, beneficiaries pay 5 percent cost-sharing). Then, effective January 1, 2025, OOP costs will be capped at $2,000 annually for all Part D beneficiaries, providing the greatest benefit to the 1.5 million enrollees whose OOP costs currently exceed this maximum. 

The IRA also requires Part D sponsors to allow beneficiaries to spread their OOP costs out over the year, known as copay smoothing, by opting into the Medicare Prescription Payment Plan. Once enrolled, beneficiaries will pay $0 at the pharmacy counter and their plans will bill them separately each month.

Part D beneficiaries may also experience lower OOP costs for negotiated drugs if plans were to place these drugs in formulary tiers with lower cost-sharing amounts. However, it is possible that for new drugs, OOP costs could increase. The IRA may incentivize manufacturers to launch new products at higher prices to account for eventual Medicare negotiation and inflationary rebates.

Part D Liability

As Medicare beneficiaries’ cost-sharing in the catastrophic phase goes away, plans will absorb that 5 percent in 2024. In 2025, plans and manufacturers will be responsible for 60 percent and 20 percent respectively of catastrophic spending in Part D, while the amount for which CMS is liable reduces from 80 percent to 20 percent. This increased liability for plans may result in greater utilization management, formulary exclusions, and efforts to extract larger rebates from manufacturers. Plans may also increase premiums as increases to patients’ portion of premiums will be capped at 6 percent per year with taxpayers subsidizing the remainder.

Ready to Learn More? 

Get in touch to schedule a consultation with ADVI Health policy experts for tailored guidance on how Part D redesign may affect your business.

---

Brenna Raines, MHA
Vice President, Market Access and Policy Strategy