Limits on Insulin Cost-Sharing under Medicare
The IRA limits Medicare beneficiary cost-sharing for a monthly supply of insulin to $35, with no deductible. Under Medicare Part B, this cap applies to any insulin furnished on or after July 1, 2023 through covered durable medical equipment.4 Under Medicare Part D, this cap applies, beginning in plan year 2023, to any insulin product covered under the applicable Medicare Part D plan, during all phases of the Part D benefit.5
Notably, since the beginning of 2021, cost sharing for many insulin products has been similarly capped at $35 per month, without a deductible, under a large number of Part D plans, pursuant to the Centers for Medicare and Medicaid Services’ (CMS) Medicare Part D Senior Savings Model (Model), a voluntary payment model established under section 1115A of the Social Security Act.6 However, unlike the Model and some congressional proposals,7 the IRA amendments do not contain any insulin coverage mandates for Part D plans, or any requirements for insulin manufacturers to provide price concessions in order for their products to be eligible for the $35 cap. Instead, it appears that Part D plan sponsors will only be required to include insulin products on their formularies to the extent mandated under existing CMS formulary rules, and the $35 cap will apply to any insulin product on the formulary or covered under an exception or appeal. Manufacturers will presumably continue to contract with Part D plan sponsors and their pharmacy benefit managers to pay rebates in exchange for having their products included on plan formularies.
For the first three months of 2023, the law includes a provision requiring Part D plans to reimburse enrollees within 30 days for any amount by which the cost-sharing collected at the point of sale exceeds the monthly $35 cap. This appears to allow for a transition period for plans to implement the new requirements while still giving plan enrollees the benefit of the reduced cost-sharing. Additionally, for plan year 2023, sponsors of Part D prescription drug plans and Medicare Advantage prescription drug (MA-PD) plans will receive a special subsidy from CMS equal to the amount of the “aggregate reduction in cost-sharing and deductible” provided due to the $35 cap. This presumably reflects the fact that Part D plans have already submitted their bids to CMS for plan year 2023 based upon the pre-IRA Part D plan requirements, which did not mandate a $35 per month cap on all insulin products.
Beginning in plan year 2026, when federal price negotiation of “maximum fair prices” for selected drugs under Medicare Part D will first be applicable, insulin cost-sharing under Part D plans will be subject to additional limitations. Specifically, the cost-sharing for a month’s supply shall not exceed the lesser of:
- 25 percent of the drug’s “negotiated price” under the plan (i.e., the price negotiated with the applicable dispensing pharmacy); or
- For insulin products for which a maximum fair price has been negotiated by CMS, 25 percent of the maximum fair price.
Discussion and Potential Implications
The IRA’s new insulin cost-sharing caps under Medicare are intended to help address situations in which Medicare beneficiaries must pay high cost-sharing for an essential medication used by millions of Americans. It is noteworthy that Congress decided to limit cost-sharing without other provisions designed to control the costs for insulin borne by Part D plans; the original Build Back Better Act provisions on which most of the IRA drug pricing provisions were based would have mandated federal negotiation of “maximum fair prices” for insulin products, but those requirements were removed from the price negotiation provisions included in the IRA.8 However, lowering cost-sharing alone will come with a cost to Medicare.9
It is also significant that the cost-sharing caps apply only under Medicare Parts B and D, even though the worst anecdotes about unaffordable insulin generally relate to people who are uninsured or have health insurance under a commercial plan. Notably, before its final passage in the Senate, the IRA contained a separate provision to similarly limit cost-sharing for a monthly supply of insulin to just $35 for individuals with private insurance. However, it did not receive the 60 votes necessary to remain in the legislation and was ultimately removed prior to passage. It is possible that future legislation may seek to extend cost-sharing limits to beneficiaries of commercial plans.
These IRA changes may have implications for rebate contracting on insulin products and on Part D plan coverage of such products. For example, the new cap eliminates the possibility of Part D plans covering an insulin product for a co-payment of more than $35 (e.g., for a preferred brand tier co-payment of, say, $55), and consequently, manufacturers will presumably no longer offer rebates for coverage at such a cost-sharing tier. Instead, the main factors determining rebate levels may be whether or not the product is on formulary and how many competing products are also on formulary. That could lead Part D plans to narrow their formularies to cover fewer insulin products in exchange for higher rebates.
A number of insulin manufacturers have indicated that they already pay significant rebates, but they are not applied by plans to reduce beneficiary costs at the point of sale. The chorus of such complaints from pharmaceutical manufacturers generally was part of the impetus for the “rebate rule” that the Trump administration proposed, that would have eliminated safe harbor protection for rebates under Part D and replaced them with point-of-sale discounts.10 Although that rule would have reduced beneficiary costs for drugs covered under Part D plans, it would have resulted in rebates no longer being applied by Part D plans to reduce beneficiary premiums, and because of that and other factors, the CMS Office of the Actuary estimated that it would have increased federal costs for Part D by nearly $200 billion over ten years.11 While the IRA cost-sharing caps do not expressly require pass-through of rebates to the prices paid by beneficiaries at the point of sale, they may have that effect, to a large degree. Reduced cost-sharing means higher plan expenditures at the point of sale, effectively reducing the amount of rebates available to be applied to reduce premiums.
More generally, as a matter of policy, one might ask why insulin is subject to monthly caps on cost-sharing, but monthly cost-sharing for many other life-saving drugs is not similarly capped. Notably, as part of its broader redesign to the Part D benefit, the IRA does include other provisions to limit beneficiary cost-sharing. These include a $2,000 cap on annual beneficiary out-of-pocket costs beginning in 2025, and a provision allowing beneficiaries to pay large cost-sharing obligations (e.g., coinsurance for an expensive specialty drug) in monthly installments. We will address those changes in a subsequent Client Alert on the IRA drug pricing amendments.
- Pub. L. No. 117-169.
- Our first Client Alert in this series, “Inflation Reduction Act Drug Pricing Amendments - Part I: New Medicare Inflation Rebates Take Effect Within Months”, is available on the Reed Smith website.
- See IRA Secs. 11406 (Medicare Part D changes) and 11407 (Medicare Part B changes).
- Medicare Advantage plans also appear to be subject to the cost-sharing limit for insulin products covered under the plans’ Part B benefit. See 42 C.F.R. § 422.100(j).
- Since other IRA changes eliminate any cost-sharing in the catastrophic phase of the Part D benefit beginning in 2025, the cap is inapplicable to the catastrophic phase from and after 2025.
- See generally, at innovation.cms.gov.
- In order for their products to be eligible for the Model, insulin manufacturers must agree to pay coverage gap discounts calculated before application of the supplemental benefit lowering co-pays to $35 during the Part D coverage gap, thereby increasing the coverage gap discount they would otherwise pay. In order for a Part D plan to participate in the Model, it must offer the co-payment of $35 or less for at least one of each type of insulin (rapid-acting, short-acting, intermediate-acting, and long-acting) in both vial and pen dosage forms, to the extent available from manufacturers participating in the Model. An example of a recent congressional proposal that contained a manufacturer pricing obligation was the INSULIN Act proposed by Senators Jeanne Shaheen (D-NH) and Susan Collins (R-ME), which generally would have mandated coverage and cost-sharing limits only with respect to insulin products for which the manufacturer had agreed to a “maximum list price,” initially set at the weighted average negotiated price under Medicare Part D net of manufacturer rebates. See the press release and the linked copy of the bill.
- Insulin products could still be subject to federal price negotiation under the same standards applicable to Part D and Part B drugs generally. For example, among other requirements, branded insulin without a generic equivalent or biosimilar in the marketplace could be subject to such negotiation if it ranks among the top expenditure drugs under Part D or Part B.
- While the Congressional Budget Office (CBO) score of the costs associated with the insulin cost-sharing limits included in the IRA is difficult to determine, CBO scores on other bills that would have mandated insulin cost-sharing are indicative of the likely score. For example, H.R. 6833, the Affordable Insulin Now Act which passed the House of Representatives in March of 2022, was scored as having a ten year cost of approximately $11.3 billion for the Part D and commercial plan insulin cost-sharing limits it contained; of that amount, it appears that somewhat less than $6.5 billion was attributable to Medicare Part D changes. See CBO Cost Estimate, Estimated Budgetary Effects of H.R. 6833, the Affordable Insulin Now Act (March 30, 2022).
- The rule was actually finalized but has never gone into effect, and section 11301 of the IRA establishes a moratorium on future implementation of the rule until 2032.
- CMS, Office of the Actuary, “Proposed Safe Harbor Regulation” (Aug. 30, 2018).