The unintended consequences of government price setting in Medicare Part D

Yesterday, the administration released the government-set prices for the first 10 medicines selected under the Inflation Reduction Act (IRA). The announcement left out important context about what is already happening in Medicare Part D because of the changes in the IRA and how Medicare patients are negatively impacted.

As PhRMA President and CEO Steve Ubl stated: “The administration is using the IRA’s price-setting scheme to drive political headlines, but patients will be disappointed when they find out what it means for them. There are no assurances patients will see lower out-of-pocket costs because the law did nothing to rein in abuses by insurance companies and PBMs who ultimately decide what medicines are covered and what patients pay at the pharmacy. The ironically named Inflation Reduction Act is a bad deal being forced on American patients: higher costs, more frustrating insurance denials and fewer treatments and cures for our loved ones.” His full statement can be read here.

Even before the government-set prices were released, seniors and people with disabilities were facing increased access barriers in Part D because of how insurers are adapting to the law.

• In 2024, the fewest standalone Part D plans are available since the program was created, and there are fewer $0 premium plans for low-income beneficiaries. 
• As a result of the IRA, 89% of insurers have stated they expect to exclude more medicines from their Part D plans in the future. Insurers have also stated they expect to increase coverage restrictions, with 85% saying they will likely use step therapy more often. 
• Premiums for standalone Part D plans went up in 2024, and in 2025, Medicare patients will likely face additional premium increases.

These concerning changes were left out of the administration’s announcement, as were these key facts:

1. What seniors and people with disabilities pay out-of-pocket depends on many factors, including benefit design. Insurers and PBMs have substantial control over what that benefit design looks like, and what hoops people have to jump through. They largely decide what patients pay at the pharmacy counter and the IRA did nothing to rein in their ability to do so. 
2. The administration is basing its savings estimates off of 2023 data, even though the new prices will not take effect until 2026. There may be a lot of change in prescribing and utilization of medicines across Medicare patients that will ultimately determine any true savings.
3. The administration’s estimated savings for patients of $1.5B assumes all patients are enrolled in a Part D plan with standard benefit design – but that’s not the case. Only 2% of non-low-income Part D patients are enrolled in the standard benefit. Most beneficiaries taking medicines selected for price setting are in enhanced plans with fixed copays, so they likely won’t see lower out-of-pocket costs.

Looking at the Part D benefit designs that patients are actually enrolled in, actuaries predict that millions of Medicare patients will see higher out-of-pocket costs for medicines selected for government price setting. This analysis from Milliman found the IRA’s drug pricing provisions could increase out-of-pocket costs for 3.5 million Part D patients taking a medicine subject to a government-set price in 2026, with low-income subsidy recipients, retirees, and Black and Asian beneficiaries seeing the largest increases.

Today marks the two-year anniversary of the Inflation Reduction Act being signed into law, and it’s concerning how many unintended consequences have come to light. Policymakers must mitigate the harms of the IRA’s price setting process and address the real barriers to patient access and affordability.