Preparing for the Inflation Reduction Act’s Impact on Medicare Plans
Since its passage in 2022, many have speculated on the impact of the Inflation Reduction Act (IRA) on providers, manufacturers and payers—especially those with Medicare Advantage plans. Just over half of all Medicare beneficiaries are currently enrolled in a Medicare Advantage plan, and enrollment is projected to reach 60% of the eligible population by 2029.
The 2025 and 2026 plan years will see the full implementation of some of the largest Medicare changes, including the Medicare Drug Price Negotiation Program, which enables the Dept. of Health and Human Services to negotiate the ten most expensive Medicare drugs. The restructuring of the Medicare Part D benefit will also cap patients’ out-of-pocket Medicare prescription drug costs at $2,000 per year, which is expected to impact millions of Medicare beneficiaries.
Let’s take a look at how payers are already responding to the IRA, and how manufacturers might prepare for a post-IRA future of more restrictive utilization management practices, greater rebating, and a consolidated Medicare landscape.
Increased Restrictions, More Aggressive Contracting
The out-of-pocket cap and the Medicare Drug Price Negotiation Program will affect not only those pharmaceutical brands included on the negotiation list, but also their competitors, in addition to other high-cost drugs. In March 2023, MMIT conducted a Special Report on the IRA. At that time, surveyed payers believed the $2,000 out-of-pocket cap would increase the utilization of high-cost specialty drugs by an average of 54%.
This sentiment was echoed more than a year later in a May 2024 MMIT Engage discussion board. Several physicians noted that the cap may influence the medications they prescribe. One endocrinologist reported they would “most likely be using more SGLT2’s and GLP-1’s and much less sulfonylureas” due to the change. Providers that customarily shy away from prescribing expensive medications will be able to treat patients on their chosen therapy, with less sensitivity to cost.
On the surface, this increase in utilization sounds great for pharmaceutical manufacturers, but the end result is unlikely to be beneficial for pharma, as costs will simply shift from patients to payers—and payers are prepared to fight back.
In the past two years, payers have been strategizing on how to mitigate these anticipated losses. In the 2023 IRA Special Report, payers ranked “pursuing more aggressive contracting with manufacturers” as very important to them, and payers representing 46% of Medicare lives said they would increase their use of prior authorizations and step therapies in response to the IRA Medicare changes.
In May 2024, during another Engage discussion board with seven P&T influencers from health plans and PBMs, five payers expressed that they plan to increase their utilization management and restrictions in Medicare plans. Three payers further specified that they would look for increased rebating from manufacturers to make up for the losses incurred by IRA mandates.
Rise in Mergers, Acquisitions and Divestitures
In the wake of the IRA, many payers may even choose to exit the Medicare Advantage market altogether as their losses grow and the business becomes unprofitable. Some large health insurers have already begun to divest their holdings.
One of the biggest insurers, Cigna, attempted to merge with Humana in late 2023, but these plans were soon called off. Cigna then divested its Medicare Advantage plans, selling them to Health Care Service Corporation in January 2024, in part due to the plans’ poor overall performance.
Cigna is not the only payer concerned with the profitability of its Medicare Advantage business. In an MMIT Engage discussion board in May 2024, three payer participants posited that some plans may exit the market due to cost increases created by the IRA regulations. One pharmacy director believes there will be “…consolidation (and potential acquisition) of smaller plans,” while a regional payer stated that “there is potential for my plan to drop our Medicare line of business if things don’t go well in 2025.”
Indeed, 2025 may be a make-or-break plan year for Medicare Advantage. Insurance giants CVS, Humana, and UnitedHealth Group have already seen dips in their plans’ profit margins this year due to rising medical costs, and this trend may only continue to increase as additional regulations take effect.
Evolving Payer Priorities as Losses Multiply
Pharmaceutical manufacturers will want to closely monitor the Medicare space as the out-of-pocket maximum becomes operative and more drugs are added to the negotiation list. Manufacturers will likely see patient access hurdles increase while dealing with more aggressive payer negotiations. As payers change their strategies to accommodate additional losses, manufacturers will need to adapt to evolving payer priorities.
While the IRA changes seem like an immediate boon for Medicare patients—especially for those who take high-cost medications—it’s still too early to tell what the ultimate end result will be for beneficiaries as a collective. Payers are already looking to increase premium costs and cost-sharing as another mechanism to recoup costs.
Individuals covered by commercial insurance seem safe for now, as payers have noted they don’t believe the IRA will impact their commercial lines of business. However, that could change if insurers feel increased investor pressure to maintain profitability. Unfortunately, the federal government may ultimately be the only one to realize significant savings from the IRA.
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