GOP Lawmakers Cry Foul at Part D Stabilization Demo

With the Medicare Part D national average monthly bid amount (NAMBA) set to spike 180% next year, CMS late last month unveiled a new demonstration program aimed at stabilizing a market that is experiencing unprecedented volatility.

However, some Republicans in Congress are up in arms over the demonstration, arguing that it contains “extra-statutory, eleventh-hour policy changes” aimed at cleaning up a problem created by the Biden administration’s most-touted health policy achievement.

“In response to the Inflation Reduction Act’s (IRA) problematic design features and rushed legislative process, the proposed demonstration employs arbitrary policy levers to achieve short-term objectives,” reads a letter sent Aug. 5 to Comptroller General Gene Dodaro by House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-Wash.), Senate Finance Committee Ranking Member Mike Crapo (R-Idaho), and House Ways and Means Committee Chair Jason Smith (R-Mo.).

“The initiative lacks any budgetary analysis, clear statutory basis, or credible research goals,” the lawmakers added, asking the Government Accountability Office (GAO) for an expedited review of the Part D Premium Stabilization Demonstration.

IRA Is Shaking Up PDP Market

The IRA, passed in 2022, made a host of policy changes aimed at reducing the cost of prescription drugs: most notably, giving Medicare authority to negotiate the price of select medications. Less famously, it also ushers in a significant restructuring of the Part D benefit — a shift that began in 2024 but kicks up a notch in 2025.

Before the IRA’s Part D changes took effect, plan sponsors were liable for 15% of enrollees’ drug costs when they reached the catastrophic phase of coverage. Starting in 2024, the IRA bumped that percentage up to 20%, which contributed to an 85% increase in the NAMBA — an enrollment-weighted average of the estimated cost for Part D plan sponsors to provide the basic benefit package. A much bigger change is coming in 2025, when Medicare Part D beneficiaries’ out-of-pocket drug costs will be capped at $2,000 annually and Part D plan sponsors will be responsible for 60% of any costs their enrollees incur past that cap.

As a result of those changes, the NAMBA will rise from $63.45 in 2024 to $179.45 in 2025, a nearly 180% increase. In practice, that will result in Part D plans receiving a larger risk-adjusted government subsidy upfront, CMS said in a fact sheet on the 2025 bid information. “By design, plans will have more liability requiring them to better manage costs within that upfront payment amount,” the agency noted.

“Plans have much more liability, much more skin in the game for higher cost drugs, so that makes the benefit overall more expensive,” David Liner, principal and consulting actuary with Milliman, told AIS Health’s Radar on Medicare Advantage. And that increased liability also “leads to expectations of induced demand” for prescription drugs, thus increasing Part D costs, observed Emily Gillen, principal with Avalere Health.

All the changes coming to the Part D benefit structure have stoked anxiety about the effect they will have on the market — which is likely what spurred CMS on July 29 to unveil the Part D Premium Stabilization Demonstration.

The program has three parts. First, CMS will apply a uniform reduction of $15 to the base beneficiary premium (which is used to calculate the plan-specific basic premium) for all participating stand-alone Prescription Drug Plans (PDPs). Second, CMS will place a $35 limit on any participating PDP’s plan-specific, year-over-year premium increase. And finally, CMS said it will adjust the risk corridors to provide for greater government risk sharing for potential plan losses.

The overarching goal of the demonstration program, according to CMS, is to “increase the efficiency and economy of services” under Part D while the market adjusts to the IRA-related changes. PDPs were asked to inform CMS of their intent to participate in the program by Aug. 5.

Demo Obscures IRA’s Impact, Lawmakers Say

Crapo, Rodgers and Smith, however, are not impressed with CMS’s efforts.

“Through new taxpayer-financed policy adjustments, the demonstration seemingly intends to deflate seniors’ premiums that are otherwise slated to increase dramatically following the counterintuitive, haphazardly-written Inflation Reduction Act’s drug price provisions,” stated an Aug. 6 press release from the House Energy and Commerce Committee.

In their letter, Crapo, Rodgers and Smith argued that the IRA will only exacerbate issues that the PDP market was already facing.

“Medicare beneficiaries have seen a significant decrease in the number of plan options available, with prescription drug plan (PDP) offerings declining by 25 percent since 2020,” they wrote. They also noted that “certain large insurers have announced their intent to exit the PDP market segment entirely,” referencing Blue Cross and Blue Shield of Kansas City’s May announcement to stop selling private Medicare plans next year.

“For the plan options that remain, seniors face substantial premium increases. Next year, as IRA implementation continues to progress, these financial effects will become all the more drastic,” the letter added, citing the NAMDA’s projected 180% increase. “Underscoring the law’s market distortions and disruptions, 11 of the 14 national PDPs have already seen a reduction in non-low-income subsidy enrollment since 2023.”

The lawmakers’ assessment aligns with predictions made by industry observers. As Deutsche Bank’s George Hill wrote in a September 2023 research note: “As it relates to Medicare Part D stand-alone plans, we believe the changes forced by the IRA will greatly increase the cost and the risk of these plans for plan sponsors and could force some plan sponsors to exit the market.”

Still, the GOP Congress members argued that CMS’s attempt to stabilize the PDP market is ill-advised. As the letter puts it: “the policies advanced through the recently announced demonstration would simply shift costs from plan sponsors and enrollees to taxpayers, obscuring the law’s impacts without addressing their underlying drivers.”

“Moreover,” they wrote, “consideration of these types of programmatic changes should fall within the purview of the legislative branch. Instead, however, this agency action seeks to sidestep Congress, waiving statutory directives under the guise of a ‘demonstration project,’ with no meaningful research aims, budgetary assessments, or empirical rigor.”

Therefore, Crapo, Rodgers and Smith asked the GAO to review what statutory basis CMS has for creating its demonstration program, and what, if any, budgetary analysis CMS undertook when developing the demonstration. Among other things, they also want the GAO to investigate how the timeline for participation in the demonstration compares to previous timelines for opting into similar programs, and how the demo will enable CMS to “achieve its stated research goals.”

Lauren Flynn Kelly contributed to this report.

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