The Biden administration on Friday announced that next year older Americans would face lower average monthly premiums for their prescription drugs, a feat achieved by pouring billions of dollars into subsidies for insurers. The move avoided a potential minefield of higher costs affecting the nation’s most stalwart voters weeks before the presidential election.
In a savvy response to the specter of huge spikes in costs, administration officials decided months ago to funnel money from a Medicare trust fund to offset rate increases that could have cost millions of people hundreds of dollars more a year.
Premiums would have gone up largely because of a $2,000 annual cap on out-of-pocket spending, and other changes to Medicare under President Biden’s signature legislative accomplishment, the Inflation Reduction Act.
Higher premiums could have been politically damaging to the presidential campaign of Vice President Kamala Harris, and threatened one of the Biden-Harris administration’s most important talking points — its success in lowering patients’ drug costs. The reality is that when patients pay less at the pharmacy counter, somebody has to foot the bill.
Republicans have sharply criticized the administration’s offset plan, known as a demonstration, since it was announced in July, calling it a nakedly political ploy meant to sway votes and saying it would offer only temporary relief to older people.
“The administration came up with this Part D demo in order to shovel billions of dollars more into the program to mask the huge premium increases that would be coming next year without it,” Joe Grogan, a senior White House official under former President Donald J. Trump, said in an interview.
Mr. Trump has not focused on drug pricing in his campaign, but has vowed to lower prescription drug costs.
Asked about the timing of the subsidies, Sara Lonardo, a spokeswoman for Medicare, said the government had used similar programs to stabilize rates in the past. She said this year’s subsidies were offered under the regulatory timetable for setting rates ahead of annual Medicare enrollment.
Medicare officials said on Friday that the average monthly Medicare drug premium will be $46.50 next year, compared to $53.95 this year, a decrease of 14 percent. Starting Oct. 15, people on Medicare can choose from dozens of plans offered by different private insurers. Some 50 million people are enrolled in Medicare drug plans.
The $2,000 cap on spending was a major accomplishment for President Biden because it will alleviate extreme financial hardship for those facing the highest costs. But only a small fraction of the 67 million Americans on Medicare have drug costs high enough to benefit from it. Absent the administration’s intervention, helping this group would have driven up premiums for almost everyone on Medicare.
So federal health officials set up their demonstration. The special program offered private insurers $15 a month for each person enrolled in Medicare drug plans in exchange for keeping premiums roughly stable. If insurers accept the subsidies, individual premiums cannot go up by more than $35 a month compared to 2024.
Medicare officials said on Friday that the vast majority of insurers accepted the offer.
The money came from a Medicare trust fund, which is financed through general revenues and the premiums beneficiaries pay. Medicare officials estimated that the subsidies would cost about $5 billion in 2025, about 3 percent of projected spending for next year in Medicare’s Part D program covering medications taken at home. Medicare officials said on Friday that no other Medicare programs would lose funding as a result of the subsidies.
Medicare announced the program in July after insurers’ estimates of how much it would cost them to offer drug coverage next year nearly tripled compared to 2024. Next year’s actual monthly premiums for individual plans were expected to be made public on Friday.
In a letter in August, three top Republican lawmakers wrote that the program “employs arbitrary policy levers to achieve short-term objectives” and came in response to the Inflation Reduction Act’s ”problematic design features and rushed legislative process.”
The federal government has created similar programs before to smooth over the effects of changes to Medicare, including under former President George W. Bush when drug benefits were first added to Medicare.
There are two types of drug coverage in Medicare. Stand-alone drug plans through traditional Medicare will cost an average of $40 per month next year, down 4 percent compared to this year.
Premiums will average $13.50 a month, a decrease of 13 percent compared to this year, through the Medicare Advantage program, a private-sector alternative to the traditional government program for people 65 and older. Medicare Advantage plans typically have lower costs but usually have fewer choices as to which doctor or hospital they can visit. Low-income people pay little or nothing for their premiums.
There were other factors aside from the out-of-pocket cap that would have resulted in higher premiums had the administration not intervened. Under the Inflation Reduction Act, insurers must take on more risk for people taking high-cost drugs, increasing their costs.
Insurers also have increasingly favored their Medicare Advantage plans over their stand-alone drug plans, offering lower premiums to try to push people into Medicare Advantage.
Because of the variation in plan costs, some people on Medicare may have to switch plans if they want to avoid increases.
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