Will the Inflation Reduction Act change the way agents choose coverage for clients?

By Chelsea Smith

The Inflation Reduction Act gave Medicare beneficiaries a new avenue to save on health insurance and prescription drug costs when it was signed into law in 2022. Some provisions, such as the $35 insulin cost cap, have been around for more than a year. But other provisions, such as prescription drug price negotiations, have some time to crescendo. Although the drugs on the list of negotiated prices were announced in September 2023, the fruits of the first negotiation’s labor will not be ready until 2026.

A lot can happen between now and then. And where the changes might stop, nobody knows. But in the meantime, what should agents know about the changes the Inflation Reduction Act brings, and what they could mean for drug costs in the U.S.?

The process

First, a quick rundown of the negotiation process. Each September from 2023 to 2026, a list of drugs will be selected based on a multitude of data points provided to the Centers for Medicare and Medicaid Services. Points include lack of competition from a generic or biosimilar, cost, what the drugs are designed to treat, and how long the drugs have been on the market, among others.

Selected drugs will then begin a price negotiation process to remain on Medicare formularies. Once a price is settled on, the new price is announced in September of the following year and goes into effect the January after that.

The drugs selected in the first round are estimated to represent 20% of the overall Medicare Part D spending, so a lot of people will benefit, right?

How much of that savings will make it to the pharmacy counter is unclear. The first phase of Part D coverage is simple to figure; that is, if the plan doesn’t skip the deductible phase entirely. Beneficiaries are potentially paying full price for their drugs for the first $545 this year. And if those prices are reduced, then of course, beneficiaries save money.

But all the drugs announced on the negotiation list last year cost either close to or over the deductible per month anyway. So your clients may be stuck paying their plan’s deductible if they are prescribed these drugs.

But after that deductible is met, your clients leave this phase. They aren’t paying sticker prices for the rest of the year. Depending on plan design, they are either paying a copay (a fixed dollar amount likely to go unaffected by price negotiations) or coinsurance (a percentage of that sticker price). This latter option is where more of the savings will appear.

Because coinsurance requires beneficiaries to pay part of a drug’s cost, yet again, the amount saved will be reliant on the base price of the drug. Take Eliquis for example: if one of your clients picks this drug up monthly and pays 20% coinsurance on his prescriptions, they would probably pay about $111.40 each month.

So while that same beneficiary might hear about a price cut of, say, $100 in negotiations, that doesn’t mean he will now pay $11.40 for Eliquis once the price kicks in. Your client will probably pay more like $91.40, saving an underwhelming $20.

Keep this in mind: Beneficiaries stay in this initial coverage phase until they have spent $5,030 in 2024. Then, they enter the coverage gap. Here, beneficiaries pay a flat 25% of the cost for each drug they purchase. Savings are applicable here for all your clients, since every plan will remain the same. Which sounds great until …

The journey ends for most beneficiaries right before reaching that point in coverage. The latest data available from 2021 shows the average beneficiary spends about $4, 527 per year on drugs. If that number includes the $545 max deductible, it leaves your average client about $600 short of reaching the coverage gap. Meaning, if that everyday client chooses a copay-only structure, they likely will see very little (if any) direct savings due to these negotiations alone at this point.

The story doesn’t end here, though. Check out Part 2 of this article series to explore other ways these negotiations might affect Medicare beneficiaries.

Chelsea Smith is learning and development specialist with Action Benefits in Southfield, Mich. Contact her at [email protected].