Exciting news! On July 29, 2024, along with preliminary 2025 Medicare Part D bid information, the Centers for Medicare & Medicaid Services (CMS) announced the creation of a new program to help subsidize the cost of Part D as Inflation Reduction Act (IRA) changes take effect.
While this is a voluntary Demonstration Project, we believe most or all Part D sponsors will participate and Medicare beneficiaries likely won’t see as significant increases in stand-alone 2025 Part D premiums as we initially expected.
Here’s what you need to know ahead of the 2025 Plan Year, so you can help your clients better understand their coverage options and costs.
A First Look at 2025 Part D Bids & Premium
Several voices in the industry, including our own, predicted that IRA Part D changes, particularly a $2,000 out-of-pocket cap and coverage gap phase elimination, would lead to major premium increases in stand-alone Part D plans for 2025.
CMS reported the national average monthly bid amount (NAMBA) for 2025 prescription drug plans (PDPs) as $179.45. This is $115.17 more — a significant increase — compared to the 2024 NAMBA of $64.28.
This figure indicates that stand-alone Part D premiums would significantly increase going into 2025, even while receiving a significantly higher payment from the government due to changes in risk sharing. Further, since all prescription drug bids (both PDP and MAPD) are included in the NAMBA calculation and since MAPD tended to have more competitive prescription drug bids, there would have been a weighting toward large premium increases for stand-alone Part D plans in absence of the Demonstration Project.
CMS is establishing a new Part D premium stabilization program to prevent market disruption and help maintain consistent and lower-cost PDP options for beneficiaries
CMS notes that, for 2025, “a significant portion of the NAMBA increase represents funds moving from reinsurance payments to upfront payments in the form of the government subsidy to plans.”
The IRA includes a provision limiting premium growth from 2024 to 2029 to six percent per year, which results in about a $2 per year increase in monthly premium for beneficiaries, however, this is the overall increase (both PDP and MAPD) and the difference between PDP and MAPD was wide. With the majority of premium increases falling on the stand-alone Part D plans in mind, CMS is establishing a new Part D premium stabilization program to prevent market disruption and help maintain consistent and lower-cost PDP options for beneficiaries.
What Is the Part D Premium Stabilization Demonstration Program?
CMS’ new Part D Premium Stabilization Program is a voluntary three-year program where stand-alone Part D plan sponsors across the United States can receive subsidization for exploring policy changes to stabilize premiums for beneficiaries.
The three main elements of the program are:
- Participating plans will reduce their base beneficiary premium by $15 for 2025, lowering the cost of their plan-specific premium. (If this causes the plan’s total premium to cost less than $0, it will have a $0 premium.)
- Participating plans agree not to raise their plan-specific total premium by more than $35 in a calendar year.
- The government will take on more risk for potential losses among participating plans.
Plans can choose to opt out of the program in future years; however, plans who do not opt into the program by August 5, 2024, will not be allowed to join later.
Why Aren’t MAPDs Eligible to Participate?
Due to Medicare Advantage Prescription Drug (MAPD) plans having more ability to offset these premium increases through their larger benefit packages and access to additional rebates, CMS is expecting much less variation in MAPD premiums.
How Will This Change Part D Premiums for 2025?
Overall, participation in the new premium stabilization program should lead to smaller increases in stand-alone Part D plan premiums for 2025 than would happen otherwise. We project this will reduce disruption and potential plan-switching in the PDP market.
CMS reports the preliminary estimated average government subsidy to plans as $142.67. This subsidy will help bring the 2025 base beneficiary premium to $36.78 — a $2.08 base beneficiary premium increase from 2024.
Once the August 5th deadline to opt into the program has passed, CMS will calculate preliminary average Part D premiums. They will finalize the premiums for individual plans in September.
Will PDPs Remain Affordable & Competitive in 2025?
Since we expect most, if not all, Part D sponsors to opt into the premium stabilization program, stand-alone Part D plans should remain a viable option for your clients who prefer them to MAPDs.
The Part D landscape continues to change and evolve as several major IRA changes take effect. We’re happy to project that the 2025 premium stabilization program for Part D should help keep stand-alone drug plan premiums in a more affordable range for your clients over the next few years.
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