Lower Drug Costs on the Horizon for Medicare Beneficiaries

Whether through typical coverage or a stand-alone drug plan, Medicare drug premiums will drop next year for most older Americans who are enrolled in traditional Medicare plans or Medicare Advantage plans. Announced on Friday, traditional Medicare drug premiums will go down an average of 14%, and Medicare Advantage premiums should drop by 13%. For a stand-along drug plan, the Medicare Part D voluntary prescription drug benefit, the decrease will top out at 4%.¹

The decreases follow a heated Senate Finance Committee hearing on September 17, during which the $2000 out-of-pocket cap for Medicare Part D beneficiaries under the Inflation Reduction Act was hailed as another cost-saving measure for older patients²—a cap also being blamed for its potential to increase plan premiums following Friday’s announcement because most Americans on Medicare don’t have high enough spending to meet that cap.^1,3

Deemed “arbitrary” by Republican lawmakers for only providing temporary relief, but hailed by Democrats as a savvy move for helping to avoid “a potential minefield of higher costs affecting the nation’s most stalwart voters weeks before the presidential election,” Friday’s announcement—first made in July and under which the option to pay nothing will be available in most states⁴—has clear divisions along party lines.

Medicare drug premiums will drop next year for most older Americans, but some may need to switch plans to benefit. | Image Credit: © Fokussiert-stock.adobe.com

Not all older Americans will benefit from these plan premium adjustments, which will primarily be fueled by the billions allocated to insurer subsidies. Those whose plan premiums are set to increase in 2025 will have to switch plans if they want to benefit from these newly pronounced lower premium offsets—also known as a demonstration—which will be financed through a Medicare trust fund.¹

Drilling down to the specifics:

• October 15 is the first day that Medicare enrollees can begin to peruse the private plans that will offer these new benefits
• Average monthly Medicare drug premiums will drop from $53.95 this year to $46.50 in 2025, for a 14% decrease
• Stand-alone drug plan monthly premiums will average $40 in 2025, a decrease of 4% compared with approximately $41.67 in 2024
• Medicare Advantage monthly plan premiums will drop from almost $15.52 this year to $13.50 in 2025, for a 13% decrease
• To keep plan premiums steady, private insurers were offered $15 for each month for each person who enrolls in the stand-alone drug benefit
• The offered subsidies could total as much as $5 billion for 2025
• The cap on insurance premiums under the stand-alone plans would be $35 per month

For 2024, just 43% of Medicare Advantage enrollees chose also to enroll in a stand-alone prescription drug plan compared with the 57% who chose to enroll in a Medicare Advantage drug plan.⁵

The premium stabilization measures first went into effect this year, and they are currently sent to extend only through 2025, with plan marketing to commence on October 1, and the open enrollment will run through December 7. Plans that choose to participate could see their base beneficiary premiums lowered by less than the $15 mentioned above if doing so might mean a negative plan premium (one less than $0).

Highlighting the benefits of these premium stabilizations under the Inflation Reduction Act, research from KFF notes base beneficiary premiums could have been 20% higher in 2024 and had potential to be 42% higher in 2025.

Beyond the premium stabilization initiative, 2 additional measures that CMS has implemented to stave off Part D premium increases for 2025 are updating its risk adjustment model and using different normalization factors for Medicare Advantage drug plans and stand-alone prescription drug plans.

References

1. Robbins R, Abelson R. Biden officials stave off sticker shock on Medicare drug premiums. New York Times. September 30, 2024. Accessed September 30, 2024. https://www.nytimes.com/2024/09/27/health/medicare-drug-prices-harris-biden.html?unlocked_article_code=1.Ok4.KZnV.KX0TQBuYoSue&smid=url-share

2. Shaw M. Inflation Reduction Act: a battleground for health care policy. AJMC^®. September 18, 2024. Accessed September 30, 2024. https://www.ajmc.com/view/inflation-reduction-act-a-battleground-for-health-care-policy

3. Cubanski J, Neuman T, Damico A. Millions of people with Medicare will benefit from the new out-of-pocket drug spending cap over time. KFF. February 8, 2024. Accessed September 30, 2024. https://www.kff.org/medicare/issue-brief/millions-of-people-with-medicare-will-benefit-from-the-new-out-of-pocket-drug-spending-cap-over-time/

4. CMS Releases 2025 Medicare Part D bid information and announces premium stabilization demonstration. News release. CMS. July 29, 2024. Accessed September 30, 2024. https://www.cms.gov/newsroom/fact-sheets/cms-releases-2025-medicare-part-d-bid-information-and-announces-premium-stabilization-demonstration

5. Cubanski J, Neuman T. What to know about Medicare Part D premiums. KFF. August 1, 2024. Accessed September 30, 2024. https://www.kff.org/medicare/issue-brief/what-to-know-about-medicare-part-d-premiums/