How the Part D out-of-pocket cap could benefit people switching from commercial insurance

More than 125,000 Medicare Part D beneficiaries will pay lower out-of-pocket costs for ultra-expensive medications thanks to the $2,000 out-of-pocket cap included in the Inflation Reduction Act (IRA), according to a study in JAMA Health Forum.

Researchers with Johns Hopkins University found that the cap will especially help people who are switching from commercial high-deductible health plans to Part D. The study cited a “selection effect” of HDHP individuals not filling prescriptions for ultra-expensive medications “due to their very high out-of-pocket cost—a phenomenon for which there is recent evidence."

"The $2,000 out-of-pocket cap in the IRA has the potential to substantially ameliorate these shocks in out-of-pocket spending when moving from commercial insurance to Part D coverage,” the researchers wrote.

However, the study also found that ultra-expensive medications place an increasingly heavy financial burden on commercial health insurance plans “as evidenced by the more rapidly increasing out-of-pocket costs in this population. Although commercial enrollees may pay less for these drugs, they can face a range of burdensome coverage restrictions.”

The IRA cap goes into effect in 2025, and researchers estimated that 125,000 more Medicare Part D beneficiaries would have had coverage for ultra-expensive medications if it had been in effect in 2019.

From 2013 to 2019, the share of Part D beneficiaries taking ultra-expensive drugs grew from 0.19% to 0.66%. Meanwhile, the share of individuals with commercial health plan coverage aged 45 to 64 who use ultra-expensive drugs grew from 0.09% to 0.46%.

“Over the same time period, the share of total Part D spending attributable to ultra-expensive drugs grew from 4.1% to 15.9%, while the share of total spending among the commercially insured population that is attributable to ultra-expensive drugs increased from 3.2% to 15%,” the study stated.

The retrospective, population-based cohort study compared claims from 37,324 Part D beneficiaries to 24,159 commercially insured individuals who filled prescriptions for ultra-expensive medications from 2013 through 2019. The data were analyzed in February.

“Given the consistent increase over time in the number of ultra-expensive drugs, even more beneficiaries are likely to be helped by the cap when it is implemented in 2025 and in subsequent years,” the study said. “Lowering out-of-pocket costs may also increase utilization of ultra-expensive drugs or other medications prescribed to those who use these drugs. While this may improve patient outcomes, it also has the potential to increase overall Medicare spending.”

The study also found that Part D beneficiaries without low-income subsidies from third-party group health plans or government programs like the Veterans Health Administration spent 2.5 times more out of pocket on ultra-expensive medications than commercially insured individuals aged 45 to 64.

“These individuals may have greater difficulty covering these payments than patients receiving third-party payments who, for example, can have additional insurance coverage through a working spouse earning additional income,” the study said.

The 10 most costly ultra-expensive drugs sold in the U.S. are lenalidomide, ibrutinib, palbociclib, enzalutamide, pomalidomide, dimethyl fumarate, ruxolitinib, ustekinumab, nintedanib and ledipasvir-sofosbuvir. Researchers compiled the list using the Medicare Part D Spending by Drug report.

The study noted that because Medicare Advantage Part D plans receive capitated payments, they might be more inclined to offer lower cost sharing for beneficiaries because it would be much cheaper than paying for the medical complications of individuals who don’t take the medications. However, the researchers said they could not find evidence of this approach being used.

“Among commercial plans, the lower number of drugs represented among HMOs may reflect coverage decisions that make these plans unattractive to patients who use particular ultra-expensive drugs,” the study said.