By Elizabeth Lippincott

The Inflation Reduction Act Part D redesign was not intended to boost enrollment in Medicare Advantage plans, but that is a likely outcome of the IRA’s changes to Part D. The IRA statutory language capped increases in a Part D premium benchmark at 6% per year, but did not cap the actual premium that members would have to pay. We suspect that legislators did not understand that actual member premiums could go up much more than 6% annually under the IRA’s Part D provisions as a result of benefit enhancements, including capping out-of-pocket costs at $2,000 annually.

Once CMS saw the contract year 2025 bids and understood how high premiums were going to rise for the enhanced benefits, it issued an HPMS memo on July 29, 2024 creating a “Voluntary Part D Premium Stabilization Demonstration” to stabilize premiums on standalone Part D plans through 2027. MA-PD plans were not included in the demonstration, but they have more flexibility to use MA rebate dollars to subsidize Part D premiums for their enrollees.

Following a request by Congressional representatives, the CBO revisited its calculations for the impact of Part D redesign, including review of the Part D Premium Stabilization Demonstration, on federal spending and premiums. On October 2, 2024, the CBO issued a letter concluding:

1. The average plan bid for standard Part D coverage increased 179% in 2025 compared to 2024;
2. The resulting growth in federal spending will be $10 to $20 billion in 2025; and
3. CMS’ demonstration (temporary subsidies) will increase federal spending for Part D in 2025 by roughly $5 billion.

To put these spending increases of $15-25 billion in perspective, the IRA’s negotiation of selected drug prices is projected to save the federal government $6 billion and Part D beneficiaries $1.5 billion in 2025.

CMS has not yet released enrollment data for 2025, but anecdotally, we are hearing that Medicare Advantage organizations experienced significant enrollment growth, in some cases more than they wanted. Some MA organizations suspended paying agent premiums for certain plans in the middle of the last AEP to slow the unexpected growth rates. We anticipate an acceleration of the steady increase in the percentage of Medicare beneficiaries electing MA plans, and MA already covered roughly 54% of Medicare beneficiaries going into AEP. Whether or not the Trump administration elects to continue the Part D Premium Stabilization Demonstration program through 2027, as outlined in the July 29, 2024 memo, standalone Part D premiums will continue to increase, with a significant spike whenever the demonstration ends.

The cost of remaining in Original Medicare will continue to increase as standalone Part D premiums rise, along with increasing Medicare Supplement or Medigap premiums, as the combined Part D and Medigap premiums become unaffordable for an increasing number of people in Medicare. As Original Medicare serves a shrinking minority of beneficiaries, it could become the niche alternative to MA, which raises questions about how we think about Medicare: How many people aging into Medicare will be able to afford the supplemental coverage necessary to stay in Original Medicare? Should Congress revisit the Fee For Service benchmark model for MA reimbursement, which dates back to a time when MA served a small minority of beneficiaries? Will CMS need to shift resources from Original Medicare administration to MA organization oversight, and if so, how will that impact MA plan operations?

The pace of change is fast right now, but thanks in part to the IRA, MA’s future looks bright.