The pending announcement that seniors enrolled in the Medicare Part D prescription drug coverage plans will have to pay substantially higher monthly premiums has the White House scrambling to shield the cost ahead of November’s presidential election.
The price hikes will be posted in late September and are expected to triple by 2025.
To cushion the blow and reduce political fallout, the Centers for Medicare and Medicaid Services (CMS) on July 29 unveiled the “Part D Premium Stabilization Demonstration” that will use taxpayer money to subsidize premiums over the next three years.
Members of Congress are questioning whether the move is legal.
Medicare Part D is an optional, standalone prescription drug program distinct from Medicare Advantage plans, which provide other benefits in addition to drug coverage.
The Biden administration and congressional Democrats sold the Inflation Reduction Act (IRA) of 2022 as lowering prescription drug costs for Medicare enrollees by capping annual out-of-pocket charges at $2,000 per enrollee. It has resulted in higher premiums for seniors, prompting CMS to address what it calls a “variation” in the transition to the IRA-mandated changes to the Part D program.
IRA Casts Long Shadow
The White House’s hasty moves on Part D premiums are rooted in the IRA’s sweeping changes to Medicare. Beginning in 2025, the IRA shifts government payments that previously would have been paid as reinsurance to what CMS describes as a “risk-adjusted subsidy payment upfront.”
The IRA’s reallocation of Medicare funding shifted the burden of cost cuts to Part D insurers, who can pass those costs on in the form of higher premiums. To blunt the spike in Medicare premiums, the Biden administration will roll out tax-payer-funded subsidies from $30 per enrollee in 2024 to $142.70 in 2025.
CMS estimates the first year of its demonstration project will cost taxpayers about $5 billion if all Part D plan sponsors participate. One of the major sponsors, Mutual of Omaha, has said it will not take part in the program. CMS has not stated how much more the plan will cost after 2025.
Cushioning the Blow
“Consistent with past practice, to help with the transition of the redesigned Part D benefit and address this variation, CMS is announcing a voluntary demonstration to improve premium stability for stand-alone prescription drug plans,” CMS stated in a press release.
“The Part D Premium Stabilization Demonstration will address whether additional policy changes stabilize year-over-year changes in premiums in stand-alone prescription drug plans, leading to more predictable options for people with Medicare Part D coverage during the initial implementation of the IRA benefit improvements, creating more gradual enrollment changes, and allowing participating Part D sponsors to accumulate the experience necessary for bidding in future years,” CMS stated.
Standalone Part D plan sponsors (insurers) had until August 5 to inform CMS if they would participate in the demonstration. Medicare Advantage providers were given until August 7.
Adding to what is already a crowded calendar, CMS is scheduled to announce prices for Medicare premiums for 2025 in late September, with Medicare open enrollment set to begin in mid-October.
IRA Casts Long Shadow
The White House’s hasty moves on Part D premiums are rooted in the IRA’s sweeping changes to Medicare. Beginning in 2025, the IRA shifts government payments that previously would have been paid as reinsurance to what CMS describes as a “risk-adjusted subsidy payment upfront.”
The IRA’s reallocation of Medicare funding shifted the burden of cost cuts to Part D insurers, who can pass those costs on in the form of higher premiums. To blunt the spike in Medicare premiums, the Biden administration will roll out tax-payer subsidies from $30 per enrollee in 2024 to $142.70 in 2025.
CMS estimates the first year of its demonstration project will cost taxpayers about $5 billion if all Part D plan sponsors participate. One of the major sponsors, Mutual of Omaha, has said it will not take part in the program. CMS has not stated how much more the plan will cost after 2025.
Lawmakers Question Legality
CMS has carried out demonstration projects in the past after changes in Medicare provisions. Some Capitol Hill lawmakers, however, are questioning whether the agency has the statutory authority to use taxpayer money to make this change to Medicare Part D.
“It’s using the federal treasury for political advantage,” Sen. Bill Cassidy, M.D., (R-LA) told Politico. “This is a way for the executive branch to implement a policy which has very positive ramifications for them, but with very sketchy legal standing.”
In an August 6 letter to the Government Accountability Office (GAO), three leading Republican lawmakers asked the agency to review the demonstration’s legality under Section 402 of the Social Security Act of 1967; ascertain what budgetary analysis CMS undertook in developing the demonstration; and determine the estimated budgetary impact of the demonstration.
“The initiative lacks any budgetary analysis, clear statutory basis, or credible research goals,” the lawmakers wrote. “The integrity of the Medicare program and the taxpayer dollars that finance its benefits demand more than partisan aspirations to justify extra-statutory, eleventh-hour policy changes.”
The letter was signed by U.S. Senate Finance Committee Ranking Member Mike Crapo (R-ID), U.S. House Ways and Means Committee Chair Jason Smith (R-MO), and U.S. House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA).
No More Chevron Deference
In addition to the Social Security Act of 1967, the letter cites two recent Supreme Court decisions that challenge the legality of the CMS action.
One is the June 2024 ruling in Loper Bright Enterprises v. Raimondo, which overturned the legal doctrine known as Chevron deference and banned federal regulators from interpreting ambiguously worded laws. The other ruling is the 2022 decision in West Virginia v. EPA, which barred federal regulators from issuing rules involving major questions of economic impact without specific congressional authorization.
The administration is ducking for political cover, says Craig Rucker, president of the Committee for a Constructive Tomorrow (CFACT)
“Once it realized that the IRA’s fiddling with Medicare Part D’s funding mechanism would lead to higher premiums for an important voting bloc, the Biden administration unilaterally shifted billions of taxpayer dollars to hide the consequences of the president’s signing the bill in the first place,” said Rucker. “If the so-called ‘demonstration’ becomes permanent and insurers abandon ship, Part D will have been effectively killed.”
Plugging One Hole, Opening Another
The IRA plugged one hole while opening another, says Jeff Stier, a senior fellow at the Consumer Choice Center.
“The Biden-Harris administration received a dose of economic reality when it learned that, like squeezing a balloon, the impact of its spending cap on Part D drug costs would have an impact elsewhere, namely causing an increase in premiums,” said Stier.
“But rather than taking its medicine and accepting the painful political side-effects of poor policymaking, the administration is attempting to use taxpayer dollars to wave a magic wand and make the problem go away,” said Stier. “When Congress, which controls the purse strings, authorized the executive branch to tinker with details of the program, it never gave the administration carte blanche to bankroll politically motivated payouts to cover for inept policymaking.”
Bonner Russell Cohen, Ph.D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.