The shifting Medicare market promises big changes for Part D plan sponsors and enrollees alike. RxSS is tracking this evolution closely to offer educational and operational support through the lens of pharmacy price transparency and Medicare member engagement. Follow along to learn where key opportunities may exist for payers amid the transformation.
By now, we have all heard the headlines: Big changes are coming to Medicare next year, and many seniors are poised to catch a break in out of pocket (OOP) spending on prescription drugs thanks to the Inflation Reduction Act (IRA).
Perhaps most notably, the IRA grants the Centers for Medicare & Medicaid Services (CMS) unprecedented authority to negotiate drug prices directly with manufacturers on an ongoing basis. It also completely reshapes the Medicare coverage phase framework with a new $2,000 maximum member OOP threshold and total elimination of the Coverage Gap next year.
These and other well-intentioned changes within the law are aimed at reducing Medicare beneficiary OOP spend. However, payers will face an astounding increase in liability and financial risk. Starting next year, they will pick up 60% of total drug cost share in the catastrophic coverage phase (up from 15% in 2023). The IRA also drastically transforms the way Medicare plan sponsors receive payment from CMS. The move from reinsurance payments to risk-adjusted upfront subsidy payments forces plan sponsors to become better than ever at effective cost management and long-term strategic planning.
And That’s Not All
While many Medicare plan sponsors brace for budget-busting IRA changes, several other market elements are rocking the boat and compounding plan financial pressure. Notably, Medicare Advantage (MA) is experiencing massive spikes in medical utilization, largely due to member migration to MA plans and delayed care during the COVID era. Plan spending levels and medical loss ratios (MLRs) are soaring. McKinsey indicates that payers may see administrative and medical cost increases of $50 per member per month (PMPM) next year.
Additionally, MA plans face a decrease in 2025 payment rates (CMS base payments to plans will drop by 0.16%). The same McKinsey analysis points to a potential $30 PMPM impact to revenue due to these rate declines. The day after CMS made the rate announcement, several major health plans saw significant drops in share value.
Amid this perfect storm of converging financial pressures, Medicare plan sponsors must also navigate new marketing restrictions, changes to STAR ratings, and increased oversight and new auditing procedures related to Medicare Parts A and B coverage guidelines.
Ultimately, the major IRA changes coupled with other compounding market elements are making it increasingly expensive and administratively cumbersome for Medicare plan sponsors to cover basic Part D benefits.
A Pivotal Year: 2025
As the purse strings tighten, payers face several operational and budgetary decisions about:
- formulary and utilization management strategy
- potential renegotiation of discounts and rebates with both pharmacies and manufacturers
- vendor partnerships
- potential consolidation of benefit design offerings
- removal of certain supplemental benefits
Next year is “make-or-break” for payers, and these critical choices will determine how well they will ride the imminent tidal wave of change. Plans are no doubt considering how to gain new efficiencies that will help offset cost increases. Making smart investments today can help achieve long-term stabilization.
A dedicated approach to pharmacy price transparency can be an important lever for plans to pull as they strive to achieve such efficiencies and anchor their budgets. If the approach includes a focused patient engagement component, it may also help minimize member confusion and abrasion amid a time of sweeping change and maintain an overall positive member experience in 2025 and beyond.
The right pharmacy transparency solution can direct members and simplify conversion to lowest-cost pharmacy options, producing savings that plans can validate in real time and lower member OOP costs.
Specific to added cost pressures introduced by the Medicare Part D redesign, this approach can play a vital role in slowing the progression of members through the coverage phases–more critical than ever given what is coming next year.
In many ways, Medicare is at an inflection point, with payers facing tremendous headwinds and negative margin pressure due to regulatory changes and shifting market dynamics. The number of changes on the horizon and so much uncertainty about their impact can feel overwhelming. Pharmacy price transparency is one of the more feasible risk management levers a plan can turn to for cost containment and member engagement support at this crucial juncture.
Even with IRA, Medicare Members Still Need Help
Despite IRA-related cost breaks for some Medicare Part D enrollees, most will still benefit from transparent pricing options that translate into cost savings for the member and plan. Some key numbers from Rx Savings Solutions’ data banks and analysis:
- Only 6% of RxSS Medicare members have prescription claims totaling $2,000 or more in OOP costs (2023 data). The vast majority (>94%) of Medicare members will have incentive and opportunity to maximize their savings potential through most or all of the 2025 plan year.
- Drugs selected for Phase 1 CMS price negotiations accounted for only 9% of total savings realized by RxSS clients and their Part D enrollees, meaning most member savings opportunities exist outside of the negotiated drug pool.
- Across all RxSS member populations, 69% of all conversions to RxSS-suggested lower-cost prescription options occur for OOP savings of $20 or less per fill.
