Since 2006, when the Medicare Part D program was introduced, average prices for insulin have increased by over 400 percent. The Medicare program requires that beneficiaries pay, on average, 25% of a drug’s list price, even if the insurer receives a discount from the manufacturer after the fact. 3.3 million Medicare beneficiaries, or about 7% of the Medicare Part D population, use insulin. For expensive drugs like insulin, many patients may struggle to afford their medication, particularly if they also take other medications to manage chronic conditions. Further, the Medicare Part D program does not have a maximum out-of-pocket limit on total patient spending at the pharmacy counter. This means total beneficiary out-of-pocket costs can go into the thousands of dollars, particularly for patients with expensive medications.
Several policy proposals have been introduced to address the total cost of drugs in Medicare Part D as well as the cost of insulin specifically. The Inflation ReductionAct of 2022 modifies the Medicare Part D benefit by including a $2,000 out-of-pocket limit for all beneficiaries as well as changes to how much different parties pay during different phases of the benefit design, including contributions from drug manufacturers, the plan, and the Federal reinsurance program. For people who use insulin, the Act establishes a separate cap on total monthly cost-sharing for insulin. Under the legislation, monthly insulin costs cannot exceed the lower of $35 or 25% of the net cost of insulin to the plan, including any rebates the plan receives from the manufacturer.
For this analysis, annual out-of-pocket costs for brand insulins in Medicare Part D for 2022 were estimated. Monthly cost-sharing for each brand insulin was estimated as the median reported monthly cost-sharing for all Part D plans in Q1 of 2022 in the Medicare prescription drug plan formulary files. Average monthly utilization (number of pens or vials) for each insulin was estimated from the Medicare Part D 2020 dashboard. Annual cost-sharing was estimated as the sum of the annual deductible for 2022 ($480) plus 11 months of cost-sharing for each insulin. Average annual cost-sharing for all insulins as well as average annual savings is volume-weighted by the number of Medicare beneficiaries using each insulin in 2020.
Table. Estimated Cost-sharing For Brand Insulins In The Medicare Part D Program For Plan Year 2022 And Estimated Annual Savings From A $35 Per Month Cost-sharing Cap For Non-Low-income Beneficiaries
* Weighted by 2020 utilization.
As seen in the Table, in 2022 the average Medicare beneficiary would face $1,263 in annual cost-sharing for a brand insulin. With the maximum in $420 in annual cost-sharing under a $35 per month cap, that beneficiary would save $843 per year in out-of-pocket costs. For beneficiaries using newer insulin formulations, like Toujeo and Tresiba, savings from a cost-sharing cap could exceed $1,000 per year. These estimates apply to beneficiaries who are not eligible for low-income subsidies, as those beneficiaries face minimal cost-sharing under current plan design. Actual reductions in cost-sharing may be even greater if cost-sharing is capped at 25% of the net price to the plan, which may be less than $35 per month.
Overall, 2.7 million Medicare beneficiaries are expected to see lower cost-sharing for insulin under these reforms. Beneficiaries that are eligible for low-income subsidies already face low cost-sharing and would be unlikely to see additional reductions in cost-sharing under this policy. Altogether, Medicare beneficiaries are expected to save $2.3 billion in cost-sharing under this policy, a 2/3 reduction in total out-of-pocket costs.
The Medicare Part D benefit redesign in the Inflation Reduction Act of 2022 will protect all Medicare beneficiaries from high out-of-pocket costs, as shown in earlier research. The addition of cost-sharing caps for insulin users further reduces out-of-pocket costs for insulin and mitigates the perverse effects of pharmaceutical manufacturer rebates. However, manufacturer rebates on drugs besides insulin will continue to shift a higher cost burden onto other patients. Policymakers should consider whether further limiting cost-sharing for all drugs based on the net price after rebates, as previously modeled by CIDSA, would remove these distortions for other therapeutic areas.