Stabilized Medicare drug premiums

The Inflation Reduction Act (IRA) includes several measures to reduce drug costs, including an out-of-pocket prescription drug spending cap of $2,000 for Medicare beneficiaries. However, these changes could significantly increase people's premiums, costing them hundreds of dollars more a year.

To help stabilize Medicare drug premiums, federal health officials set up a demonstration that offered private insurers subsidies to keep premiums around the same costs for next year.  

Under the special program, which was announced in July, private insurers were offered $15 a month for each person enrolled in a Medicare drug plan. If insurers accepted the subsidies, individual premiums could not increase by more than $35 a month compared to 2024. A vast majority of insurers accepted the subsidies, Medicare officials said.

According to the New York Times, funding for the subsidies came from a Medicare Trust Fund, which is financed by general revenues and premiums paid by beneficiaries. Currently, the subsidies are projected to cost around $5 billion in 2025, or 3% of the projected spending in Medicare's Part D program for medications taken at home. Medicare officials noted that no other Medicare programs would lose funding due to the subsidies.

Last week, federal health officials publicly announced monthly premiums for individual plans. According to CMS, average Medicare Part D premiums are projected to decrease from $53.95 in 2024 to $46.50 in 2025, a 14% decrease.

Average Medicare Advantage (MA) premiums are also expected to decrease next year, going from $18.23 in 2024 to $17 in 2025. According to CMS, around 60% of MA enrollees in their current plan will have a $0 premium next year.

"CMS has taken significant steps over the last few years -- improved payment accuracy and improved protection for people with Medicare -- and the data are showing that benefit offerings are stable and premiums are decreasing," said Meena Seshamani, director of CMS' Center for Medicare. "People will continue to have ample, affordable choices in both MA and the Part D markets."

New CMS regulations also provide people with options for "stronger beneficiary protection, such as better guardrails to prevent problematic prior authorization, as well as improved access to mental health and substance use disorder treatment," Seshamani said.

Controversy around the plan to curb Medicare costs

According to the Times, Republicans have sharply criticized the Biden administration's demonstration plan, arguing that it will only offer temporary financial relief to older adults and was designed to sway votes in the upcoming presidential election.

In August, three top Republican lawmakers sent a letter saying that the program "employs arbitrary policy levels to achieve short-term objectives." They also said that it was a response to the IRA's "problematic design features and rushed legislative process."

Separately, Joe Grogan, a senior White House official under former President Donald Trump, said that the Biden administration "came up with this Part D demo in order to shovel billions of dollars more into the program to mask the huge premium increases that would be coming next year without it."

President Joe Biden and Vice President Kamala Harris "are just buying time with borrowed taxpayer dollars," Grogan added.

On the other hand, Democratic lawmakers have defended the Biden administration's demonstration program. In August, Sen. Ron Wyden (D-Ore.), who is chair of the Senate Finance Committee, said the plan could help stabilize the Medicare Part D prescription drug program market.

"The Biden-Harris administration is taking additional steps that I fully support to keep premiums stable as insurance companies learn how to be competitive in this market," Wyden said.

A spokesperson for CMS also noted that the agency has done demonstrations in the past when "there have been significant changes introduced in the [Medicare] program." For example, a similar program was introduced when the Part D program was first added to Medicare in 2006.

"The Part D Premium Stabilization Demonstration is about making sure people with Medicare continue to save money on their drug costs while having stable, affordable choices of prescription drug plans,” CMS said. "It is also consistent with other demonstrations that CMS has conducted in the past to address transitional issues associated with the implementation of major changes to the Medicare program." (Robbins/Abelson, New York Times, 9/27; Frieden, MedPage Today, 9/28; Luhby, CNN, 9/19; King/Lim, Politico, 8/13; CMS fact sheet, 9/27)