Tara O'Neill Hayes

Executive Summary

Nearly three out of every 10 Medicare Part D enrollees face annual drug expenditures high enough to be considered a high-cost enrollee. The Bipartisan Budget Agreement (BBA) of 2018 made changes to the Medicare Part D prescription drug program that are likely to save these high-cost enrollees nearly $400 annually in out-of-pocket costs.
However, these changes also have the potential to weaken the very structure of the Part D program that has led to its success by reducing insurers’ liability by an estimated $3 billion and thus their incentive to control costs.
President Trump’s FY2019 budget also includes several changes to the Part D benefit design. Assuming the BBA were never passed, these changes would increase insurer liability by an estimated $5 billion. This increase should eliminate a perverse incentive that led insurers to prefer coverage of high-cost, high-rebate drugs at the expense of taxpayers and patients with the highest prescription drug costs.
If the president’s changes are implemented in addition to the recent changes made by the BBA, however, insurer liability would be reduced by an additional $14 billion, resulting in net total savings to insurers of more than $17 billion, further exacerbating the problem created by the BBA. Thus, while some patients will likely see a reduction in their out-of-pocket costs in the short term, undermining the competitive structures of the program threatens to drive up costs for everyone in the long term.

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