Medicare Part D change

Investment Analysis Clubs Macro Economic Trends and Risks
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Before 2025, Medicare Part D had no hard limit on total out-of-pocket prescription costs, meaning enrollees with complex or high-cost medications could pay thousands of dollars unlimited throughout the year. Beginning in 2025 ( Inflation Reduction Act of 2022), that spending was capped at $2,000, and it is indexed annually to adjust for drug inflation (rising to $2,100 in 2026).

I was very relieved to see this. Prescription drug spending can be catastrophic. Most newer pill-form cancer drugs—including oral chemotherapies, targeted therapies (like kinase inhibitors), and immunotherapy pills—are covered under Medicare Part D. The list prices for these medications are extraordinarily high—frequently ranging from $10,000 to over $20,000 per month at retail.

Because newer oral cancer medications are almost exclusively brand-name specialty drugs without generic alternatives, they sit on the highest cost-sharing tier (Specialty Tier) of drug formularies.

There have been news stories about changes related to this program. It’s so beneficial to patients (at the cost of the government) that I was afraid that the whole program might be scrapped.

But the situation isn’t dire for patients. The $2,000 cap will be maintained.

But this is a good news/ bad news story. The law put much more of the burden/ risk of spending over the cap onto the insurance companies. Because insurance companies went from paying only 15% of high-cost drug expenses under the old rules to 60%, they now carry far more financial risk for expensive specialty drugs (like oral cancer therapies).

The government subsidized this for a couple of years but now they are terminating the subsidy.

The Part D insurers will raise their premiums to cover the extra cost of the expensive drugs. While I don’t like higher premiums, this is catastrophic coverage which is the primary role of insurance. It’s transferring the cost from the general public (government) to the pool of insured people.

Insurance premiums would spike but the Inflation Reduction Act imposes 6% cap on annual base beneficiary premium. This is complicated. Part D premiums can rise more than 6% depending on market. To enforce the 6% cap, the federal government provides direct financial subsidies to offset any gap between what the base premium would have been based on insurer bids and the capped amount ($38.99 for 2026). This subsidy flows directly to Part D plans to cushion overall premium hikes.

Temporarily.

  1. Starting in 2030, the statutory 6% annual cap expires under the current law. The calculation for the Base Beneficiary Premium will revert to the standard statutory formula, which sets the base premium equal to 25.5% of the expected national average cost of providing basic Part D coverage.
  2. Potential Impact: If drug spending continues to rise and insurance carriers submit higher bids, removing the 6% cap in 2030 could lead to a sharper one-time adjustment in the base benchmark figure, unless Congress votes to extend or modify the stabilization provision before then.

So this is a good news/ bad news story.

Good news: The $2,000 cap on prescription drug spending is still in place. It’s permanent and won’t terminate.

Bad news: Part D premiums will rise right away since the government is ending the temporary subsidy to insurance companies. But they still have to follow the 6% base growth rule.

Even worse news: The 6% cap on base growth ends after 2029. The base premium formula reverts to its original standard calculation, setting the benchmark at 25.5% of average estimated plan costs. Then there will be a step-change rise in Medicare Part D premiums.

Wendy

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Insane because ultimately unworkable. Technology creates pseudo-options that our policy structures need to address…. and that requires some sort of sane public morality about mortality.

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Getting levied with max-IRMAA after my Avis short squeeze windfall ellipses any Medicare premium increases.

https://www.ssa.gov/forms/ssa-44.pdf

intercst

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Isn’t that just for one year (two years after the tax return with the big gain) and then it drops back to normal?

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Yeah, assuming something similar doesn’t happen again. I was tempted to take my gains on GLW a few weeks ago (when I saw insider sales), since the chart pattern looked the same as when I bought it at $2/share in 2002.

.https://www.google.com/finance/beta/quote/GLW:NYSE?hl=en&gl=US&window=MAX

intercst

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Yep, I bought GLW way back when, too. I think it was in the $2.50 range. Thought the same thing as you when I saw the chart.

But it’s been good to me, so I held. I DRIP it, too.

Man, sure wish I bought more than 6 shares. :nerd_face:

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There’s a scene in an Indiana Jones movie. I think Temple of Doom. He finds he has been poisoned and is offered the antidote. To me this is the health care system in the US.

How much will you pay to save the life of a loved one. Usual answer is whatever you have.

Healthcare is a priority whatever the cost. Healthcare inflation has to be addressed. If not it will consume every thing else.

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There are four categories of conflicting beneficiaries from health care.

  1. Patients. As new technologies and medicines are developed, patients want to get the best! My great-grandmother, grandmother and 5 other close relatives got breast cancer. I got an MRI, found the bilateral tumors at 5 mm, had bilateral mastectomy and silicone implants. I had replacement of my bicuspid aortic valve and aortic aneurysm. My lifetime medical cost has been many hundreds of thousands of dollars. But I can still do Zumba and stand on my hands at age 72 instead of dying in my 50s like my great-grandmother and grandmother.

  2. The providers of medical goods and services who want to maximize their profits. The healthcare sector spends more on federal lobbying in the United States than any other industry sector. Within healthcare, pharmaceutical manufacturers, pharmacy benefit managers (PBMs), and physician organizations spend hundreds of millions of dollars annually to influence federal and state legislation.

Pharmaceutical Companies & Trade Associations

Annual Federal Spending: ~$350 million to $400 million

Pharmacy Benefit Management Companies (PBMs)

Annual Federal Spending: ~$18 million (Trade Group) + $30 million+ (Parent Corporations)

Doctors’ & Physician Organizations

Annual Federal Spending: ~$100 million to $115 million

  1. The government, which pays over half the budget on medical-associated spending, including Medicare and Medicaid. Of course, the government is run by Congress which is influenced by lobbying.

  2. Taxpayers who foot the bill for government spending. Of course, taxpayers also need medical care, especially older taxpayers who are most likely to need medical care right now. But even younger taxpayers have older relatives and also will themselves get old eventually.

The new Medicaid law enacted in July 2025 (H.R. 1) fundamentally reshaped Medicaid eligibility for working-age adults (ages 19–64) in ACA expansion states by mandating 80 hours per month of work, education, or community service alongside six-month eligibility renewals (starting in 2027). This will reduce reduce federal Medicaid spending by $326 billion to $375 billion over 10 years. The spending cuts stem directly from coverage loss rather than cheaper care. An estimated 5 million to 6 million working-age adults are projected to lose Medicaid coverage—primarily due to administrative paperwork barriers, verification delays, and income/hour fluctuations rather than an unwillingness to work. States & Hospitals will absorb the administrative burden and uncompensated care expenses.

The state of Oregon tried to address their medical spending by prioritizing the cost-benefit. In 1989, the Oregon legislature budgeted a specific dollar amount to spend on health care. They appointed a panel of doctors to list medical spending in order of cost-benefit. Vaccination was #1 on the list since it costs very little but prevents huge expenses caused by infectious illness. At the bottom of the list were expensive treatments for rare or end-stage diseases. Coverage extended down the list until the budgeted money ran out.

The Oregon approach made sense to me. But President George H.W. Bush put the kibosh on it in 1992 by claiming that it violated the Americans With Disabilities Act. Oregon currently has a complicated arrangement that does take state budgets into account but will soon be forced to comply with national Medicaid standards.

So, @pauleckler, I don’t see much chance for a significant control on medical spending. That’s why I own shares in several drug companies.

Wendy

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We should be gearing medical costs for universal care and a low factory production cost to be competitive globally.

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The high cost of drugs in the US isn’t due to a lack of competitive edge with production costs

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You are misunderstanding, I am talking about industrial manufacturing labour costs. Not just pills. Well beyond that.

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We have the most expensive health care system in the world and have mediocre results.

Medicine is labor intensive. The professionals are highly trained and expect to be well paid.

Yet we have many uninsured. Voters like the insurance they have and object to rising insurance premiums but are willing to pay.

We should be working to squeeze out the fat. Or the system will bankrupt us all.

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