Thanks to the IRA, Medicare Part D Is Fighting for Its Life

 CMS does its utmost to shield seniors from the IRA’s impacts. It won’t be enough.

The Biden Administration continues to pretend that it’s been protecting Medicare and the seniors who depend on it, but last week the Health and Human Services (HHS) bureaucracy was forced to pull out all the stops to mask the havoc caused by their signature legislative achievement, the Inflation Reduction Act (IRA).

Each year, insurance plans submit bids to the Center for Medicare and Medicaid Services (CMS) for the right to offer prescription drug coverage to Medicare beneficiaries. These bids provide CMS with information about the package of benefits offered and the cost of offering these benefits. CMS summarizes this information for the public at the end of each July, and usually includes information about average premiums. For years, premiums have been stable and even exhibited declines as they did over the course of the Trump Administration.

Last year, the first year the IRA’s Part D changes started to take effect, premiums increased 21 percent. Policymakers and insurance plans have been warning that this year would be even worse, but the Administration ignored these warnings, and publicly predicted premiums this year would be stable.  But as the final bids came in from plans, reality set in. 

CMS delayed announcing the premiums and instead suddenly unveiled a three-year Premium Stabilization Demonstration.  The new demonstration, announced100 days before a Presidential election, allows CMS to assume more of the plans’ costs by injecting taxpayer dollars into the program and mute the IRA’s massive inflationary effects.

CMS’s lack of transparency and the haphazard creation of this demonstration program—plans have only been given a week to decide if they will participate—suggests the Agency should have more carefully considered what plans had been telling it for months: they could not participate in the program and seniors would lose coverage if something drastic wasn’t done. 

The effort CMS is investing to hide the program’s collapse is shocking even to those of us who expected trouble. The bid announcement included information on how much plans believe it will cost them to cover an average beneficiary each month. To call the increase an explosion would be an understatement; since 2023, just after the IRA was passed, the cost to provide benefits has increased a whopping 417 percent.

Announcing huge premium increases for seniors going into the Democratic Convention would have spoiled the party. The Premium Stabilization Demonstration means that bids will need to be recalculated, delaying publication of premiums until mid-September, when they will be more reasonable due to the demonstration’s taxpayer subsidy. As a political bonus, the delay in the premium announcement gives the Administration a week and a half to tout “savings” from the IRA’s drug price setting component, scheduled to be announced September 1^st. 

CMS stated in its announcement that the Premium Stabilization Demonstration won’t grow more generous, but things will only get tougher for Part D in the years ahead. As the Drug Price Negotiation scheme takes effect in 2026, the price discounts that used to be the result of true negotiation between plans and drug companies get replaced by government price setting. Before the IRA, plans had used these discounts to reduce premiums, as they do in the commercial market, but Congressional Democrats used that money to fund Biden’s green energy boondoggle, meaning upward pressure on premiums will mount.

After the election, policymakers will be left with unpalatable choices: if the demonstration expires, Part D will become too expensive for enough seniors to buy coverage and the program will die.  Or taxpayers can be asked to stomach more spending. Either way, Part D’s success is destroyed. 

The Administration has not yet released estimates of how much this Rube Goldberg will add to the deficit. In its oversight capacity, Congress must seek these answers, but expect a lot of zeroes.

After the election, Democrats in Congress needs to admit that partisan Part D reform was a grave mistake, as is true of the broader drug price “negotiation” program. Democrats should be held accountable for this fiasco, and Republicans shouldn’t abide their longstanding practice of trading tax cuts or some other priority with acquiescence to increased subsidies to mask failed policies with gushers of taxpayer funds.  Ideally, Congress should restore both bipartisan drug policy and the successful design of the Part D program created in 2003 while modernizing the program to contend with today’s groundbreaking therapeutics. If protecting seniors and preserving America’s supremacy in medical innovation are Congress’s priorities, a proper balance can be achieved.

Joe Grogan is a nonresident senior scholar at the USC Schaeffer Institute and served as domestic policy adviser to President Trump, 2019-20

https://www.realclearpolicy.com/articles/2024/08/07/thanks_to_the_ira_part_d_is_fighting_for_its_life_1050305.html