Medicare Enrollees May Still Face Affordability Issues After Part D Benefit Redesign

About 800,000 Medicare beneficiaries in 2024 and 200,000 in 2025 could see their out-of-pocket (OOP) medication costs exceed 10% of their annual income, even with the Part D drug benefit reforms passed via the Inflation Reduction Act (IRA), according to an Avalere analysis.

The IRA will establish a beneficiary OOP cap at the catastrophic threshold, which is estimated to be $3,233 in 2024. Avalere estimated that 1.5 million Part D enrollees without low-income subsidies (LIS) are projected to reach OOP drug spending levels above the catastrophic threshold in 2024. Among them, about 18% of beneficiaries will reach the catastrophic phase in the first three months. Greater shares of beneficiaries who are younger than 65 years old or who are Hispanic will face affordability challenges compared to the average non-LIS enrollees. The analysis also suggested that non-LIS enrollees taking asthma drugs, blood thinners, immunology therapies, cancer treatments and HIV drugs are more likely to reach the OOP cap in 2024.

Starting in 2025, Part D beneficiaries will be protected by a $2,000 OOP spending cap. Part D plans will also be required to allow enrollees to spread their OOP costs over the course of the plan year, also known as “OOP smoothing.” Avalere projected that 2.6 million non-LIS beneficiaries will have OOP spending above the $2,000 cap and 4.2 million will hit $1,500 in OOP spending in 2025.

Avalere analyzed the circumstances under which enrollees would incur most of their OOP costs in the last few months of the plan year, once the smoothing program is in place. Among those reaching greater than $1,500 in OOP spending, around 20,000 enrollees are projected to have large OOP spending (i.e., more than $1,250) in the last three months of the year. Greater shares of racial/ethnic minority groups, including Asian, Black and Hispanic beneficiaries, are projected to face such circumstances.

A Kaiser Family Foundation analysis showed that about 1.4 million Part D non LIS enrollees had annual OOP drug spending of $2,000 or more in 2020, and 1.3 million of them hit the catastrophic threshold, which equaled roughly $2,700 in OOP costs that year for brand-name drugs alone. Among these 1.4 million beneficiaries, 69% spent between $2,000 and $3,000 out of pocket, 19% had spending of $3,000 to $5,000, and 11% spent $5,000 or more.

SOURCES: “Some Enrollees May Face Affordability Challenges Under Part D Redesign,” Avalere. “How Will the Prescription Drug Provisions in the Inflation Reduction Act Affect Medicare Beneficiaries?” Kaiser Family Foundation.

This article was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

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