National Average Part D Bid Continues Downward Trajectory, but for How Long?

by Lauren Flynn Kelly

 

In its annual release of the Medicare Part D payment benchmarks and other bid-related information for the coming plan year, CMS on July 29 reported that the national average monthly bid amount will continue a years-long downward trend, dropping to a historic low of $34.71. At the same time, monthly premiums are expected to take a slight dip. While both pieces of information — released by CMS in an effort to help Part D sponsors finalize their premiums and prepare for open enrollment this fall — reflect positive trends and a competitive market, upcoming changes included in the recently passed Inflation Reduction Act of 2022 could start to reverse those trends in the future.    Bid amounts are down for another year  The national average monthly bid amount is a weighted average of the standardized bid amounts for each stand-alone Prescription Drug Plan (PDP) and Medicare Advantage Prescription Drug (MA-PD) plan.   For 2023, the national average bid will decrease by 9.1% to $34.71, following an 11.4% decrease between 2021 and 2022.  “It’s always hard to draw too many conclusions about the national averages until we get the landscape files to really understand what’s driving those changes,” remarks Shelly Brandel, principal and consulting actuary in the Milwaukee office of Milliman. But she notes that the national average reinsurance subsidy amount — which helps determine the average monthly premium and is designed to protect plan sponsors against unpredictable swings in pharmacy spending — will increase by just $1 to $93.68 next year, compared with increases of 7% in the last couple years.   That smaller increase in the reinsurance subsidy amount could be the result of accelerated growth in rebates and other forms of pharmacy direct and indirect remuneration (DIR).  Could the IRA cause the winds to change?  Total DIR as a percentage of the bid has been rising over the last several years. “And when that happens a portion of the DIR is shared with the federal government and so that’s taken out of the reinsurance subsidy,” explains Brandel.  The way the benefit is structured now, that reinsurance subsidy covers 80% of the drug costs above members’ true out-of-pocket threshold, which is set at $7,400 and triggers the catastrophic coverage phase, when plans are responsible for 15% of members’ drug costs and beneficiaries pay a 5% coinsurance.  But with the recent passage of the Inflation Reduction Act, which President Joe Biden signed into law on Aug. 16, beneficiaries would no longer have to pay 5% of costs above a new total out-of-pocket spending cap of $2,000. And while plans could attempt to make up the difference by raising monthly premiums, the law also restricts their ability to raise premiums by more than 6% annually.   The likely outcome is that that the “difference between the national average bid amount and the member premium is going to increase the direct subsidy that plans get, such that…[any higher] premiums that the plans see will have less of an impact because they’re getting more from the federal government in that direct subsidy value,” suggests Adam Barnhart, who is also a principal and consulting actuary with the Milwaukee office of Milliman.