The national average bid amount for Part D plans will increase from $64.28 in 2024 to $179.45 in 2025, according to information released Monday by the Centers for Medicare and Medicaid Services.
The increase is due to government subsidies changing from being reconciled on the backend to a larger risk adjustment up front, according to CMS.
This redesign of the Part D program is meant to encourage better cost management through a larger risk-adjusted government Part D subsidy payment up front, rather than cost reconciliation on the backend based on beneficiary costs, or on reinsurance payments.
The preliminary estimated average government subsidy to plans will be $142.67 in 2025.
By design, CMS said, Part D plans will have more liability requiring them to better manage costs within that up-front payment amount.
The national average monthly bid amount, or NAMBA, in 2025 will be $179.45, an increase from $64.28 in 2024.
These changes do not mean that Part D premiums will increase by a similar amount, CMS said.
NAMBA is based on an enrollment-weighted average of all applicable Part D plan bids for basic Part D benefits, with weights based on the number of enrollees in each plan. The calculation is based on the number of Part D eligible individuals enrolled in a plan in a given month, divided by the total number of Part D eligible individuals enrolled in all Part D plans during that month.
WHY THIS MATTERS
CMS has released preliminary Medicare Part D bid information for 2025 to help Part D plan sponsors finalize their Part D and Medicare Advantage offerings and prepare for open enrollment starting on October 15.
Premiums for Part D stand-alone prescription drug plans will increase by $2.08 in 2025, according to CMS. For 2025, the base beneficiary premium will be $36.78.
A higher percentage of the plan bid amounts – the number that estimates the expected costs for an average enrollee – will be paid by the government subsidy to plans, and thus changes to plan bid amounts do not reflect potential premium changes to enrollees, CMS said.
Capped costs and donut hole elimination
In 2025, all people enrolled in Part D will have their annual out-of-pocket prescription drug costs capped at $2,000 per year due to protections in the Inflation Reduction Act. As in 2024, there is no beneficiary cost sharing above the annual out-of-pocket threshold in 2025.
In addition, the Medicare Prescription Payment Plan that will be offered by all Part D plans next year will allow people the option to spread prescription drugs over the year, CMS said.
The Inflation Reduction Act that was signed into law in 2022 also provides a premium stabilization mechanism to limit the average premium increases for people enrolled in Part D to about $2 per month on average.
The IRA also eliminates the Prescription Drugs Coverage Gap (known as the donut hole) in 2025.
This will result in standard Part D coverage consisting of a three-phase benefit: a deductible phase, an initial coverage phase, and a catastrophic phase, CMS said. There will be no initial coverage limit, and the initial coverage phase will extend to the maximum annual out-of-pocket threshold, at which point the catastrophic phase will begin.
The Coverage Gap Discount Program sunsets effective January 1, 2025, and is replaced by the Manufacturer Discount Program. Under the Manufacturer Discount Program, the manufacturer will typically pay a 10% discount for brand-name drugs and biologics in the initial coverage phase.
In the catastrophic phase, the manufacturer will typically pay a 20% discount for brand-name drugs and biologics.
The reinsurance payment amount for 2025 for a Part D beneficiary will decrease from 80% of the allowable reinsurance costs incurred after the beneficiary exceeds the annual out-of-pocket threshold to 20% for brand-name drugs and biologics, or 40% for generics. Amounts that previously would have been paid as reinsurance will, on average, shift to plans’ up-front calculation of costs and the up-front government subsidy.
Beginning in 2025, more payments by third-party payers will accrue as if they were beneficiary out-of-pocket costs, reducing beneficiary spending, including supplemental Part D coverage and coverage by other health insurers, CMS said.
Voluntary Premium Stabilization Demonstration
Usually, CMS releases preliminary premium information in July, but this year the agency is waiting to determine participation in a new voluntary premium stabilization demonstration. Plans have until August 5 to inform CMS of their intent to participate.
CMS said it would then work to calculate preliminary average premiums and would release final Part D premiums at the individual plan level in September.
Stand-alone Part D plan sponsors will be able to communicate their intention to participate in the demonstration between July 29 and August 5, and plan sponsors will have from July 29 until August 7 to complete Medicare Advantage rebate reallocation.
CMS said it is conducting the voluntary demonstration to test whether additional premium stabilization and revised risk corridors for stand-alone prescription drug plans increase the efficiency and economy of services under the Medicare Part D program.
The demonstration consists of three elements:
- First, CMS will apply a uniform reduction of $15 to the base beneficiary premium (used to calculate the plan-specific basic premium) for all participating stand-alone PDPs.
- Second, to target variation, a year-over-year increase limit of $35 will be imposed on a plan’s total Part D premium, meaning any plan-specific total Part D premium would not be permitted to increase more than $35 from CY 2024.
- The third element of the demonstration will be a change to the risk corridors to provide for greater government risk sharing for potential plan losses.
THE LARGER TREND
Changes to the Part D basic benefit are projected to save people with Medicare an average of 30% in annual out-of-pocket prescription drug costs in 2025. This will result in a decrease of approximately $7.4 billion in out-of-pocket prescription drug spending for people with Medicare Part D in 2025, according to a report by the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation.