Today, the Centers for Medicare & Medicaid Services (CMS) is releasing preliminary technical Medicare Part D bid information for contract year 2025 to help Part D plan sponsors finalize their Part D and Medicare Advantage (MA) offerings and prepare for Medicare Open Enrollment. Additionally, CMS is announcing a voluntary demonstration to support implementation of the redesigned Part D benefit and improve stability for people with Medicare in 2025. The preliminary average Part D premiums will be released later this summer. CMS will release the 2025 landscape in mid-to-late September, as in past years, once all offerings are finalized.
Final average MA premiums and deductibles, along with other key information, are released annually in September with the MA & Part D Landscape.
The Inflation Reduction Act Lowers Out-of-Pocket Prescription Drug Costs
The Biden-Harris Administration’s Inflation Reduction Act (IRA), also known as the prescription drug law, made several improvements to the basic Part D drug benefit. According to a report by the HHS Office of the Assistant Secretary for Planning and Evaluation, these changes to the Part D basic benefit are projected to save people with Medicare an average of 30% in annual out-of-pocket (OOP) prescription drug costs in 2025. This will result in a decrease of approximately $7.4 billion in OOP prescription drug spending for people with Medicare Part D in 2025.
Before the prescription drug law, millions of people with Medicare struggled to afford their prescription drugs. People with lower incomes and those under age 65 are also more likely to skip taking the medicine they need because of high costs.[1] The prescription drug law makes changes to Medicare Part D so that millions of people with Medicare will spend less on their prescriptions.
In addition to multiple provisions of the IRA that are already lowering costs for people with Medicare, Part D benefit improvements going into effect in 2025 include the following:
- Beneficiary OOP spending is capped at $2,000 for 2025.
- As in 2024, there is no beneficiary cost sharing above the annual OOP threshold in 2025.
- The coverage gap phase (also known as the “donut hole”) will be eliminated, which will result in standard Part D coverage consisting of a three-phase benefit: a deductible phase, an initial coverage phase, and a catastrophic phase. There will be no initial coverage limit, and the initial coverage phase will extend to the maximum annual OOP 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 Coverage Year (CY) 2025 for a Part D beneficiary will decrease from 80% of the allowable reinsurance costs incurred after the beneficiary exceeds the annual OOP 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’ upfront calculation of costs and the upfront government subsidy.
- Beginning in CY 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.
Overall, these changes mean that the government subsidy to Part D plans is shifting from largely being reconciled on the back end based on beneficiary costs (i.e., reinsurance payments) to a larger risk-adjusted government Part D subsidy payment upfront. By design, plans will have more liability requiring them to better manage costs within that upfront payment amount. The IRA 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. Due to both of these changes, a higher percentage of the plan bid amounts (i.e., plans’ estimates of 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.
Base Beneficiary Premium for 2025
For 2025, the base beneficiary premium will be $36.78, which is $2.08 more than 2024.
Voluntary Part D Premium Stabilization Demonstration
Overview
CMS is conducting a voluntary demonstration to test whether additional premium stabilization and revised risk corridors for stand-alone prescription drug plans (PDPs) increase the efficiency and economy of services under the Medicare Part D program as the benefit improvements and changes to plan liability for beneficiary costs under the IRA go into effect. 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. If the reduction would result in a plan’s total Part D premium (that is, the sum of the Part D basic and Part D supplemental premiums) being below $0, the plan’s basic Part D premium will be reduced to the point where the plan’s total Part D premium equals $0.
- 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. If applicable, the year-over-year limit will be applied after the reduction in the base beneficiary premium and applies to the total plan premium.
- 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.
Eligibility
The demonstration is voluntary and nationwide. CMS has structured the demonstration so that all stand-alone Part D plan sponsors offering Part D prescription drug plans participate to provide stability across the entire Part D market. All stand-alone PDPs, including Employer Group Waiver Plans (EGWPs), are eligible to participate in the demonstration. Because EGWPs do not submit bids and are not subject to risk corridor reconciliation, they are eligible for the first element of the demonstration and not the year-over-year plan premium limit or risk corridor elements. Part D sponsors must include all plans under each of their stand-alone PDP contracts in the demonstration if they participate. Part D sponsors with multiple stand-alone PDP contracts must include all contracts in the demonstration if they choose to participate.
Duration
The demonstration is designed for one year with the parameters described above and at least two subsequent demonstration years, with parameters to be adjusted to reflect market conditions and variation in those years. Sponsors that participate in 2025 will have the opportunity to participate in the demonstration in subsequent demonstration years. However, if a Part D sponsor rejects this protection for beneficiaries and does not participate in the demonstration in 2025, they will not be permitted to participate in subsequent demonstration years.
Next Steps
Part D sponsors of PDPs must inform CMS of their intent to participate in the PDP demonstration for CY 2025 via HPMS. CMS will release premiums to plan sponsors for all eligible stand-alone PDPs based on submitted bids and as they will be under the demonstration on Monday, July 29, 2024. Part D sponsors can inform CMS of their participation starting Monday, July 29, 2024, and until 11:59 PM PDT on Monday, August 5, 2024.
National Average Monthly Bid Amount & Government Subsidy
The national average monthly bid amount (NAMBA) is 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. It is used to calculate the government subsidy to plans. In 2025, the NAMBA will be $179.45. As described further in the Frequently Asked Questions below, the NAMBA in 2025 looks different than in recent years because of the Part D benefit design changes. Importantly, the amount of increase in the NAMBA does not mean that Part D premiums will increase by a similar amount. A significant portion of the NAMBA increase represents funds moving from reinsurance payments to upfront payments in the form of the government subsidy to plans. The preliminary estimated average government subsidy to plans will be $142.67 in 2025.
Frequently Asked Questions
Why is CMS conducting this demonstration?
The IRA made the most significant changes to the Part D benefit since the Part D program was established in 2006. Given the significant changes to the benefit, the IRA includes protections that constrain the average level of premium increases across the Part D market by limiting year-over-year increases in the base beneficiary premium for CY 2024 through CY 2029 to no more than about $2 per month. However, CMS has observed more variation in the stand-alone PDP bids submitted by plan sponsors as compared to MA-PD plans for 2025. The variation in PDP bids and resulting premium changes could create disruptive enrollment shifts in the PDP market during the initial implementation of the IRA benefit improvements. CMS believes that additional premium stability in the PDP market may improve the predictability of PDP offerings available to enrollees and improve the efficiency of the transition for both people with Medicare and Part D plan sponsors.
Has CMS conducted this type of demonstration in the Medicare program before?
Yes, in the past, CMS has conducted demonstrations to address transitional issues associated with the implementation of major changes to the Medicare program. For example, in the early years of the Part D program, CMS implemented several demonstrations to test changes designed to limit fluctuations in basic premiums and to stabilize premium subsidies for low-income individuals.
Why is the demonstration limited to stand-alone PDPs?
While there is greater-than-anticipated variation in PDP premiums, there is much less variation in MA-PD premiums. This is due in part to differences in the drivers of Part D costs in each of these two sectors of the Part D market, including a variety of market-based variables such as the overall benefits that they are able to manage and available strategies used to manage Part D costs, including MA-PD plans access to MA rebates. The application of MA rebates will likely further reduce premiums for people enrolled in MA-PD plans.
What happens to Part D enrollees whose plans don’t participate in the demonstration?
The demonstration is voluntary and nationwide. Given the meaningful protection offered to consumers, this demonstration is structured to encourage all stand-alone Part D plan sponsors offering Part D prescription drug plans to participate to provide stability across the entire Part D market.
As always, people with Medicare should review their health care needs for the upcoming year during the Open Enrollment period and determine if they would benefit from changing plans. They may find a Medicare drug plan with better coverage and/or a lower premium in 2025 by shopping available plans and comparing costs.
Why isn’t CMS releasing preliminary premium information like CMS usually does in July?
Plan premium information will be impacted by participation in the voluntary demonstration. Therefore, CMS must wait until plans inform CMS of their intent to participate in the demonstration by August 5, 2024. CMS will then work to calculate preliminary average premiums.
Once offerings are finalized, we will release final Part D premiums at the individual plan level in September, consistent with past years, via the 2025 MA and Part landscape after Part D sponsors have completed all steps necessary to finalize their 2025 bids.
Why did the national average monthly bid amount (NAMBA) increase? How does that impact the government subsidy?
The national average bid amount increased from $64.28 in 2024 to $179.45 in 2025. This increase is in line with expectations due to the redesign of the program that encourages better cost management of the Part D benefit by Part D sponsors through a larger risk-adjusted government Part D subsidy payment upfront rather than cost reconciliation on the back end based on beneficiary costs (i.e., reinsurance payments). Importantly, the amount of increase in the NAMBA does not mean that Part D premiums will increase by a similar amount. A significant portion of the NAMBA increase represents funds moving from reinsurance payments to upfront payments in the form of the government subsidy to plans. The preliminary estimated average subsidy to plans in 2025 is $142.67.
Furthermore, CMS is conducting the voluntary Part D Premium Stabilization Demonstration to test whether additional premium stabilization and revised risk corridors for stand-alone PDPs increase the efficiency and economy of services under the Medicare Part D program, as the benefit improvements and changes to plan liability for beneficiary costs under the IRA go into effect.
Additional information about the IRA and Medicare can be found here.
[1]Prescription Drug Affordability among Medicare Beneficiaries. HHS Office of the Assistant Secretary for Planning and Evaluation. See at https://aspe.hhs.gov/reports/medicare-prescription-drugs.