There hasn’t been much open discussion this political season with regard to health policy/healthcare. What there has been is predominantly centered around abortion, reframed as reproductive healthcare or women’s healthcare. To a lesser extent, the Harris campaign has touted prescription drug price reductions, including a $2,000 cap on Medicare out-of-pocket drug costs beginning in January of 2025. An insight on Harris health policy positions is here: https://rhislop3.com/2024/07/23/kamala-harris-likely-health-policy/
What the Medicare prescription drug price cap and other proposed changes to the upper limit (catastrophic cost share) via the Inflation Reduction Act really do is push more cost to Medicare Part D plans/insurers. Beginning in January, insurers will be responsible for covering 60% of medication costs, while Medicare and drug manufacturers will divide the remaining 40% for brand-name drugs, and Medicare will cover the entire 40% for generics. prior to the IRA’s changes, plans were responsible for only 15% of the costs, with beneficiaries shelling out 5% and Medicare covering 80%. Medicare drug plan premiums: How Biden is averting a spike to keep costs low | CNN Politics
Beginning October 15 and running through December 7, Medicare Advantage open enrollment occurs. During this period, seniors participating in Medicare (either fee-for-service or Advantage) can choose a Medicare Advantage plan if desired or a new Part D, drug plan. OE 23 Factsheet_v3_508
This is where the two-step reference comes in. Because new premiums for Part D plans will be released concurrent with open enrollment, and the changes in prescription drug cost share fall in terms of cost, greater to the insurer, premiums were expected to jump – BIGLY (couldn’t resist in this time of politics). With the plans encountering so much (potential) additional cost, finding a way to keep premiums down during this election cycle necessitated a bit (ok, quite a bit) of cross subsidization – a two-step.
As part of a Medicare demonstration project that tests changes in payments or reimbursement methods, a transfer payment to participating insurers will occur equal to an extra $15 per member per month. In turn, insurers agree to limit monthly premium increases to $35 from the prior year. In addition, Medicare will reduce the financial risk insurers encounter from beneficiaries incurring high medication costs.
These financial infusions are on top of an increase in Medicare’s average direct subsidy to Part D plans of close to $143 for 2025, a jump from less than $28 this year.
The ongoing support via the Medicare demonstration program doesn’t apply to Medicare Advantage plans and will last potentially, three years. A change in administrations could lead to a change in the subsidy approach.
The concern on the part of the Biden-Harris administration and the Harris campaign is that a significant jump in Medicare drug premiums directly due to the Inflation Reduction Act and current administration policy, could adversely impact senior citizen votes (away from Harris). Stabilizing the premiums or actually, pushing them downward potentially via the subsidy ($15 per member per month plus additional direct subsidy) will cost an estimated $5 billion, just for 2025. The senior voting block is the largest demographic segment in terms of voter participation. Here is a link to the Biden Administration’s announcement on prescription drug price savings – Statement from President Joe Biden on Lower Prescription Drug Prices | The White House
The cross-subsidy game or “Texas two-step” maneuver is a long-standing issue within healthcare and health policy. By changing how items get paid for, via direct premiums or patient cost share to Medicare programs that are tax subsidized, prices and fees can be easily manipulated. The difficulty however, from a policy perspective, is that Medicare is already nearing insolvency and programs like Part B and Part D that rely on participant premiums for funding, continue to be woefully short funded compared to actual costs. The short fall is made up by taxpayers via general purposed revenues, allocated to program deficits.