The Inflation Reduction Act (IRA) passed in 2022 included several changes to the Medicare Part D benefits, aimed at improving affordability for beneficiaries. One of those changes is that in 2024, a beneficiary out-of-pocket cap will be established at the “catastrophic threshold,” or roughly $3,233 in out-of-pocket costs (not including manufacturer coverage gap discounts). Then, in 2025, the cap decrease to $2,000 and plan and manufacturer liability throughout the benefit are changed. Additionally, starting in 2025, Part D plans will be required to allow any Part D enrollee to spread their out-of-pocket costs over the course of the plan year (known as “OOP smoothing”).
Avalere recently released a report that found that even with some of the Medicare Part D reforms included in the Inflation Reduction Act (IRA), “some beneficiaries may still face affordability challenges resulting from the timing of their prescription fills and their income.”
Avalere specifically notes that beneficiaries with limited income without cost sharing support through the low-income subsidy, beneficiaries with high out-of-pocket costs in a short period of time in 2024 (prior to the OOP smoothing), and beneficiaries who incur most of their out-of-pocket costs later in the plan year in 2025 and beyond (when there is less time for OOP smoothing), are most at risk of continued affordability challenges.
2024
In its analysis, Avalere found that 1.5 million non-low-income subsidy enrollees are expected to have out-of-pocket spending high enough to hit the cap in 2024. Of those, about 270,000 beneficiaries are expected to incur their out-of-pocket costs in the first quarter of 2024. Because OOP smoothing does not get implemented until 2025, those enrollees may face affordability challenges during those months of high out-of-pocket costs.
Additionally, nearly 800,000 non-low-income subsidy enrollees are projected to have out-of-pocket spending on Part D drugs of more than 10% of their annual income in 2024, even WITH the catastrophic threshold cap. The vast majority of those beneficiaries have an income between 150 and 300% of the federal poverty level, just above the low-income subsidy eligibility threshold.
The highest number of non-low-income subsidy enrollees projected to reach the catastrophic threshold cap in 2024 include those taking asthma drugs, blood thinner, immunology therapies, cancer therapies, and HIV drugs.
2025
In 2025, when the cap is reduced and OOP smoothing is implemented, Avalere predicts that 2.6 million non-low-income subsidy enrollees will have out-of-pocket spending high enough to reach the $2,000 out-of-pocket cap. Additionally, even with the $2,000 cap, more than 200,000 non-low-income subsidy enrollees are expected to have out-of-pocket spending above 10% of their 2025 annual income.
In 2025, blood thinners, asthma drugs, immunology therapies, HIV drugs, and cancer therapies are expected to be the therapeutic areas with the highest number of non-low-income subsidy enrollees projected to reach the out-of-pocket cap.
Avalere also looked at the OOP smoothing program and how it may impact enrollees who incur the majority of their out-of-pocket costs during the latter part of the year. In looking at that data, Avalere estimates that 4.2 million non-low-income subsidy enrollees who are projected to have more than $1,500 in out-of-pocket spending in 2025 will have large out-of-pocket expenses (defined as more than $1,250) in the last three months of the year.
Methodology
To calculate their numbers, Avalere used 2020 Medicare PDE data to project beneficiary utilization and spending under the IRA Part D changes for 2024 and 2025. The numbers are based on a 20% sample. The analysis only estimates the impact of the Part D benefit redesign under the Inflation Reduction Act and does not include any potential interaction effects with other provisions in that law, or any other laws.