New study examines the premium impact of Medicare Part D reforms

Lawmakers on Capitol Hill are racing to negotiate a budget reconciliation package that would advance President Biden’s “Build Back Better” agenda and make significant policy changes in health care. As part of budget reconciliation, Congress is considering proposals to modernize the Medicare Part D program, which almost 50 million Americans rely on to afford their prescription medicines.

A new report from actuarial consultancy Oliver Wyman analyzed two key proposals—the Build Back Better Act and the Prescription Drug Pricing Reduction Act—to assess their impact on Medicare beneficiaries’ premiums. Here’s what we found:

Build Back Better Act

The Build Back Better Act—which was approved by the House Budget Committee in September—includes a number of reforms to Medicare Part D to simplify benefits and provide enhanced financial protection for beneficiaries. The bill includes a new $2,000 annual cap on out-of-pocket expenses for beneficiaries, eliminates the “coverage gap” phase and changes the manufacturer and plan sponsor liabilities for the cost of brand name medicines.

Prescription Drug Pricing Reduction Act

The Prescription Drug Pricing Reduction Act—which was approved by the Senate Finance Committee in 2019—would make similar changes to the Medicare Part D program, such as eliminating the “coverage gap.” However, the bill also includes a $3,100 annual cap on out-of-pocket expenses for beneficiaries and has different liability levels for manufacturers and plan sponsors across the coverage phases than what is included in the Build Back Better Act.

Impact on Part D Premiums

The current Medicare Part D benefit design includes four coverage phases—a deductible, an initial coverage phase, a coverage gap phase and a catastrophic phase. Different cost liabilities are distributed among beneficiaries, health plans, drug manufacturers and the federal government during each phase. Under both Part D modernization proposals, the liability amounts for beneficiaries, plans, manufacturers and the federal government would change. See Appendix B in the report for details on each proposal.

The Oliver Wyman report highlights how Part D premiums are highly sensitive to changes in the manufacturer’s liability amount in relation to these Part D benefit redesign proposals. Incremental increases to the manufacturer liability in the coverage phases result in a reduction in Part D premiums. Using this modeling, Oliver Wyman estimated the manufacturer liability that would be required in each coverage phase to mitigate the expected increase in Part D premiums. They found manufacturer liability in the initial coverage phase and the catastrophic phase must add to 50 percent in order to prevent Part D premium increases.

Protecting Beneficiaries and Preventing Higher Premiums

To protect Medicare beneficiaries and help prevent higher premiums or increased taxpayer costs, BCBSA strongly encourages policymakers to ensure pharmaceutical manufacturers’ liability is sufficient: at least 50 percent across the initial coverage and catastrophic phases.

If these steps are not taken, Congress risks raising premiums for nearly 50 million seniors in the U.S. with Medicare Part D coverage—making it harder for them to get the medicines they need, when they need them.