Since 2022, the news has been full of stories about the wonderful things the federal government is doing to lower the cost of prescription drugs for people on Medicare and to cap their annual out-of-pocket costs for prescription drugs.
Granted, lowering drug prices can be a noble gesture to help older Americans, especially those with limited incomes. But, is it truly a benefit for American Seniors, or a political ploy by those who initiated the legislation?
I’m reminded of two quotes. President Ronald Reagan once said, “I’ve always felt the nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
And many years ago, former North Carolina congressman Charles Taylor told me, “The federal government could screw up a one-car funeral!”
And so, it would seem—again.
The Inflation Reduction Act of 2022 included a provision intended to lower drug prices for people on Medicare. The provision would:
- Require the federal government to negotiate prices for some drugs covered under Medicare Part B and Part D with the highest spending, beginning in 2026.
- Require drug companies to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries.
- Cap out-of-pocket spending for Medicare Part D prescription enrollees at $2,000 per year.
- Limit monthly cost sharing for insulin to $35 for people on Medicare.
- Make adult vaccines covered by Medicare Part D no-cost to the beneficiary.
- Expand eligibility for full benefits under the Medicare part D Income Subsidy Program to an additional 17 million low-income people.
Medicare has completed negotiations with drug manufacturers for the first 10 drugs that will have lover prices: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and NovoLog/Fiasp. These drugs are covered under Medicare Part D and the negotiated prices will take effect in 2026. The drugs treat a variety of conditions, including:
- Blood clots (Eliquis, Xarelto)
- Diabetes (Farxiga, Jardiance, Januvia, Fiasp/NovoLog)
- Heart failure (Entresto, Farxiga)
- Psoriasis (Stelara, Enbrel)
- Rheumatoid arthritis (Enbrel)
- Crohn’s disease (Stelara)
- Blood cancers (Imbruvica)
The number of drugs subject to negotiation will increase to 15 drugs in 2027, 15 more drugs in 2028, and 20 more drugs in 2029 and later years.
On the surface, it sounds good, but as legendary broadcast commentator Paul Harvey used to say, here’s the rest of the story. Government involvement, or the Medicare Part D Premium Stabilization Demonstration Program, may actually cost Medicare recipients more money and limit accessibility to prescription drugs. The cap on drug prices and the $2,000 out-of-pocket maximum has prompted insurers to propose substantial hikes to the Part D drug plan premiums of millions of Medicare beneficiaries.
To avoid a massive spike in prices just weeks before the presidential election, the administration offered insurers three years of hefty new subsidies that could total about $5 billion in 2025 alone. The Inflation Reduction Act (IRA) requires insurers to be on the hook for more of the costs once enrollees hit the catastrophic coverage phase above the cap.
The subsidy program, will provide participating insurers with an extra $15 per member per month. Insurers will limit monthly premium increases to $35 from the prior year. Plus, Medicare will minimize the exposure insurers face from beneficiaries with high drug expenses.
These protections are on top of a large increase in Medicare’s average direct subsidy to Part D plans of nearly $143 for 2025, up from less than $28 this year. That reflects a shift to Medicare paying insurers up front for providing basic drug benefits, rather than paying them retroactively to cover high-cost enrollees in the catastrophic coverage phase.
Starting in January, insurers will cover 60% of drug costs, with Medicare and drug manufacturers splitting the remaining 40% for brand name drugs and Medicare picking up the full 40% for generic medications. Before the Inflation Reduction Act, plans were responsible for only 15% of the costs, with beneficiaries paying 5% and Medicare covering 80%.
But even with the subsidies and shifting of liability, the costs to Medicare recipients is going up. An analysis by KFF, a health information nonprofit, found that “many insurers are increasing premiums” and that large insurers including UnitedHealthcare and Aetna also reduced the number of plans they offer.
For example, in California, Wellcare’s popular Value Script plan went from 40 cents a month to $17.40. The Value Script plan in New York went from $3.70 a month to $38.70, a more than tenfold hike — and precisely a $35 increase. KFF found that premiums went up for at least 70% of drug plans offered in California, Texas, and New York and for about half of plans in Florida and Pennsylvania — the five states with the most Medicare beneficiaries.
Along with big changes brought by the IRA, Medicare beneficiaries should prepare for the inevitable surprises that come when insurers revise their plans for a new year. In addition to raising premiums, insurers can drop covered drugs and eliminate pharmacies, doctors, or other services from the provider networks beneficiaries must use.
32.8 million people are enrolled in Medicare Advantage plans, accounting for more than half, or 54%, of the eligible Medicare population, and $462 billion (or 54%) of total federal Medicare spending, according to KFF. Within Medicare Advantage plans, insurers are finding other ways to make up costs the government is now making them assume, things like increasing the copay for specialist visits, increasing the number of days you pay for hospital stays, increasing the amount for emergency room visits and radiology services as well as decreasing the amount a plan pays for dental services, eye glasses and over-the-counter purchases.
In recent months, Humana, CVS and some smaller insurers announced plans to pull out of unprofitable markets and reduce service in others, so those Medicare Advantage customers have to find another plan or return to Original Medicare.
And then there are medical organizations that will no longer accept certain Medicare Advantage (MA) plans. One example is Vanderbilt University Medical Center (VUMC) in Nashville, Tennessee. In 2024 VUMC performed
- 3.3 million patient visits
- 194,000 telehealth visits
- 81,000 surgeries
- 80,000 hospital discharges
- 213,000 emergency department visits
- 5,000 Lifeflight air transports
- 809 organ transplants during the fiscal year
As of January 1, 2025, VUMC will no longer accept any Medicare Advantage plans from Blue Cross Blue Shield (BCBS) of Tennessee because of a dispute over reimbursement. Vanderbilt says the amount BCBS wants to pay is not enough. Blue Cross says it is. So, thousands of people with Blue Cross Blue Shield MA plans have to change plans, which may also mean changing doctors and other medical providers if their current doctors are not in-network with their new MA plan. It’s happening all over the country as insurers look for ways to pay for the extra costs and liability forced on them by the federal government through the Inflation Reduction Act which allows the government to negotiate drug prices. Because of the new requirements insurers are planning to reduce MA enrollments.
CVS Health, Aetna and Humana are the largest providers to state their intentions to shrink their share of the Medicare Advantage market, citing cost concerns and shrinking profits. CVS CFO Tom Cowhey said at an investment banking conference in May, according to STAT, that the company could “lose up to 10% of our existing Medicare members next year” as the company focuses on “margin over membership.”
Humana CFO Susan Diamond, meanwhile, indicated in a July call with investors that the company expects to lose about 5% of its 6.1 million Medicare Advantage members next year after it exits unprofitable markets and trims its plan options, according to Modern Healthcare.
CVS is the third-largest MA insurer, and dropping 10% of its enrollees would force 420,000 members to find other coverage. If Humana cuts 5% of its enrollment, another 305,000 Medicare Advantage customers would lose coverage.
Medicare Advantage beneficiaries could see their supplemental benefits reduced or cost-sharing increase by $33 a month on average in 2025, according to an analysis from the Berkeley Research Group. This average cut varies by state, with beneficiaries in Nevada seeing an estimated $90 per month reduction in benefits, while beneficiaries in Wyoming will pick up an estimated $34 in additional benefits per month.
Aside from the increased costs Medicare recipients will see, there is also a major cost to all U.S. taxpayers. The Congressional Budget Office (CBO), a nonpartisan agency that provides Congress with analysis about federal economic budgetary matters, issued a report estimating the additional cost of getting drug manufacturers to lower the price of the first ten drugs will increase federal spending (taxpayer money) by $10 billion to $20 billion in 2025 alone and could cost as much as $21 billion over three years.
So, here are questions, perhaps rhetorical at this point.
- How much will it really cost Medicare recipients for the government to negotiate on their behalf?
- How much will it cost U.S. taxpayers for the government to negotiate on behalf of Medicare recipients?
- How much will Medicare recipients have to pay for Medicare insurance after the government’s three-year experimental subsidies to drug companies expires?
- What happens to the quality of care for Medicare recipients as fewer insurers offer Medicare Advantage plans and the number of in-network doctors shrinks?
I refer you back to the words of President Ronald Reagan:
“I’ve always felt the nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
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