The Centers for Medicare and Medicaid Services (CMS) announced a Part D Senior Savings Model on Tuesday that could save scores of seniors hundreds of dollars per year on insulin. CMS will accomplish this not with onerous government mandates or counterproductive price controls, but with public-private partnerships that include health insurance companies, biopharmaceutical manufacturers, patient advocates, and federal agencies.
As members of Congress and some government bureaucrats offer troubling proposals aimed at artificially lowering prescription drug prices in Medicare - such as a Part D inflation cap or a Part B international pricing index - the Part D Senior Savings Model for insulin points to a promising, alternative way forward for patients, plans, manufacturers, and policymakers. CMS and the Trump administration reached an agreement with 1,750 Medicare Part D prescription drug plans (PDPs) and Medicare Advantage drug plans (MA-PDs), and the three major global manufacturers of insulin (Eli Lilly, Sanofi, and Novo Nordisk), to effectively cap seniors’ insulin costs at $35 per month in these plans.
CMS estimates that “beneficiaries who use insulin and join a plan participating in the model could see average out-of-pocket savings of $446, or 66 percent, for their insulins.” Seniors will start seeing these benefits in the 2021 plan year, which begins January 1. Those hundreds of dollars per year would make a big difference to seniors on fixed incomes at any time, but will particularly help seniors struggling with the economic effects of the COVID-19 pandemic. The agency notes that “over 3.3 million Medicare beneficiaries use one or more of the common forms of insulin.”
The model also corrects a key disincentive in the Medicare Part D design. This concerns the 70 percent discount that drug manufacturers have to pay for drugs used during a senior’s “coverage gap,” which in 2020 typically occurs when a senior has accrued between $4,020 and $9,719 in total drug costs for the year. CMS explains:
“Currently, Part D sponsors may offer prescription drug plans that provide lower cost-sharing in the coverage gap; however, when they do, the Part D sponsor accrues costs that pharmaceutical manufacturers would normally pay. These costs are then passed on to beneficiaries in the form of higher premiums. The new insulin model directly addresses this disincentive by doing two things: 1) allowing manufacturers to continue paying their full coverage gap discount for their products, even when a plan offers lower cost-sharing; and 2) requiring participating Part D sponsors’ plans, in part through applying manufacturer rebates, to lowering cost-sharing to no more than $35 for a month’s supply for a broad set of insulins.”
In the long run, policymakers should consider phasing out the manufacturer discount completely, and replacing it with a simpler, more market-based Part D design. In the meantime, CMS’ model will reduce some disincentives in the current Part D program, protect seniors who choose one of the model’s 1,750 plans, and will accomplish all this with the active participation of both insurance plans and pharmaceutical manufacturers.
These public-private partnerships are far more productive, and far less destructive, than proposals like H.R. 3. This drug pricing bill from Speaker Pelosi would threaten manufacturers with a 95-percent gross sales tax that would, in turn, destroy the market incentives to develop new cures for debilitating diseases. Other proposals from lawmakers, such as the Part D inflation caps, would threaten the free-market structure that has made Part D a success for America’s seniors, whose premiums are actually going down from year to year even as health care costs elsewhere go up.
This is the way forward for policymakers: public-private partnerships that 1) lower regulatory barriers and 2) remove disincentives in public programs that reduce competition and prevent patients from accessing medicine and health services at lower costs. CMS should be applauded for this model, and lawmakers and regulators should seek more active partnerships with the private sector that deliver savings to patients.