Policy Impact on Out-of-Pocket Costs

Starting in 2025, all MAPD and PDP beneficiaries will have their Part D out of pocket costs capped at $2,000. Interestingly, many members will reach the OOP cap before actually paying a full $2k. This will be a little confusing for seniors, but that’s not much different than the confusion they face today when they hit the coverage gap (formerly known as donut hole) seemingly at random. This will at least be a positive surprise (i.e., stop paying cost share when the OOP cap is hit) vs a negative surprise (i.e., pay a higher cost share when the coverage gap is hit). The $2,000 cap is calculated on a claim-by-claim basis using a “greater of” logic by comparing what the member actually paid under their enhanced plan benefit (a $45 copay, for example) vs what the theoretical Defined Standard cost sharing for the claim would be have been ($590 deductible, 25% coinsurance, $2k cap). Take a drug with a $200 gross cost on a tier with a $45 copay. The theoretical Defined Standard cost sharing would have been $200 * 25% = $50, but the member only paid $45. In this example, the $50 would accumulate towards the $2,000 even though the member only spent $45. Now take a drug with a $100 gross cost on a tier with a $45 copay. The theoretical Defined Standard cost sharing would have been $100 * 25% = $25, but the member actually paid $45. In this example, the $45 that the member actually paid would accumulate towards the $2,000 because the Defined Standard cost sharing was lower. By virtue of the fact that the total coverage is enhanced, more fills will fall into the first example (pays $45 OOP but $50 accumulates) than the second example where their actual OOP amount accumulates. Further, most non-low income members in the market are in a plan with some level of enhancement. So this means the majority of high cost members in Part D will pay less than $2k. We would anticipate that Plan Finder will accurately account for this nuance when seniors go shopping this fall, and from there, insurer dashboards will have to help members along the way to anticipate when they may hit their caps.

🚨NEW PAPER (and a good one, at that)!!🚨 Starting in 2024, the Inflation Reduction Act imposed an annual cap on out-of-pocket costs for all patients with Medicare Part D prescription drug coverage. 💵💊 The goal was to prevent cost-related barriers to patients accessing medications, particular expensive ones. 📝 In our new JAMA Health Forum paper led by Christopher Cai, we measured how this policy changed the use of medications by Medicare patients. We used a diff-in-diff framework to compare the use of >3000 drugs by Medicare and privately insured patients. And we stratified drugs by their cost. 👀 The results are pretty astonishing. 📈 Use of medications in Medicare increased substantially, particularly for higher-cost drugs. For the highest-cost drugs (>$7000/mo), use increased by 36% after 2 years, and was still climbing!! This study has 2 important implications about the IRA’s out-of-pocket caps: 1️⃣ Medicare patients’ access to high-cost drugs has dramatically improved! 👏 2️⃣ Medicare spending on these drugs has also increased substantially. 💰 This paper is our first attempt to measure the impact of this important policy. Looking to forward to more research as the data become available. 👇Link to open-access article in comments. Aaron S. Kesselheim, M.D., J.D., M.P.H. Program On Regulation, Therapeutics, And Law (PORTAL)

Medicare Part D’s new out-of-pocket cap is changing patient behavior. Plans may not be ready for the consequences--a 27% spike in drug spending. --- A new Milliman analysis shows that through the first half of 2025, gross drug costs per member per month (PMPM) in the non-low income (NLI) Medicare #PartD population rose 27% year-over-year. If current trends hold, 2025 may end with a 36% annual increase over 2024's second half. --- The Inflation Reduction Act’s $2,000 out-of-pocket cap is likely a major driver. Removing cost barriers predictably improves access, but it's also reshaping utilization patterns. NLI members, now shielded from catastrophic costs, are using more specialty therapies. That’s especially clear in classes like antineoplastics and biologics for atopic dermatitis, where gross costs and utilization both soared over 50%. In contrast, low-income (LI) members (whose benefit structure changed less) show far more stable trends. Group retiree (EGWPs) NLI specialty trends are far more muted, reinforcing the IRA’s outsized influence in the individual PDP and MAPD markets. --- The upcoming challenge is for plan pricing and risk adjustment. The 2025 RxHCC model is based on 2022 data, assuming historical cost relationships between LI and NLI enrollees that are no longer accurate. If CMS doesn’t adjust, plans could face serious misalignments between actual costs and revenue, and premiums could increase in 2027 when this year's claims impact bids. --- The IRA OOP max improved access and reduced OOP spending for high-spend members, but it also exposed major weaknesses in how the market adjusts for risk in Medicare Part D. How should CMS and plans respond for 2027?