Inflation Reduction Act Provision to Cap Medicare Drug Plan Increases at 6%

The new Inflation Reduction Act of 2022 will limit annual increases in clients’ share of Medicare Part D prescription drug plan costs, according to officials at the Centers for Medicare and Medicaid Services.

CMS officials are talking about the inflation law provision in the advance notice for the Medicare Advantage program bidding process for 2024.

CMS have also predicted that payment rule changes now under development could hold Medicare Advantage plan issuers’ average change in revenue to a 1.03% increase.

What It Means

CMS and health insurers seem to have moved away from the truce that prevailed while the COVID-19 pandemic was filling hospitals.

The Notice

The new notice will shape bargaining between CMS and insurers over Medicare Advantage coverage prices.

About 30 million of the 65 million Medicare enrollees now use the program to fill in the many gaps in Original Medicare coverage.

CMS is putting the advance notice through a comment period that will end on March 3.

Drug Coverage Costs

CMS usually calculates the Medicare Part D drug plan base beneficiary premium after the bidding process is over, using the bids to determine determining the enrollees’ share of the cost.

CMS uses the base beneficiary premium to calculate the premium imposed on late drug coverage enrollees.

The 2023 base beneficiary premium is $32.74 per month.

From 2024 through 2029, the Inflation Reduction Act will hold increases in the base beneficiary premium to 6% per year.

One question is what the rate increase cap will mean for your clients’ own monthly prescription bills.

Analysts at Wakely, a health care consulting firm, say CMS will provide extra subsidies to keep the annual increases in a plan’s premiums under 6%.

The cap may not necessarily have a practical impact on the base beneficiary premium, because, in recent years, typical increases have been much lower than 6%.

Medicare Advantage Costs

The effective growth rate in plan costs could be 2.09% in 2024, but federal payment cuts related to decreases in quality ratings could lower revenue by 1.24%, CMS predicts.

Although the average Medicare Advantage patient health risk score will increase by 3.3%, a risk model change will offset most of that increase, officials say.

Insurers’ Reactions

Officials at two insurance industry groups, America’s Health Insurance Plans and Better Medicare Alliance, say they are still reviewing the advance notice but have concerns.

AHIP says it will provide “comprehensive, constructive feedback” during the notice comment period, and the Better Medicare Alliance says the notice would make “multiple complex technical changes.”

“We look forward to a thoughtful discussion with policymakers on these proposals,” the alliance says.

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