NR 506 Week 4 Medicare Insulin Cap Policy Analysis Example

Policy Analysis of the Medicare Part D Insulin Cost-Sharing Limit: How It Runs at the Pharmacy Counter, Who It Pays, Who It Misses and Who Carries the Cost, and the Medicaid Rebate Change That Also Moved Insulin Prices

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College of Nursing, Chamberlain University

NR 506: Health Care Policy

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Month Day, Year

Policy Analysis of the Medicare Part D Insulin Cost-Sharing Limit: How It Runs at the Pharmacy Counter, Who It Pays, Who It Misses and Who Carries the Cost, and the Medicaid Rebate Change That Also Moved Insulin Prices

The Policy Under Examination

This paper analyzes one provision: the limit on cost-sharing for insulin in Medicare Part D, which the Inflation Reduction Act of 2022 placed in paragraph (b)(9) of Social Security Act section 1860D-2. From January 1, 2023, a covered insulin product is exempt from the Part D deductible, and cost-sharing for a month's supply may not exceed $35 in 2023 through 2025, and from 2026 the lower of $35 or 25% of either the price the plan negotiated or the maximum fair price set under drug price negotiation (Inflation Reduction Act, 2022). The paper does not analyze insulin policy in general, or the parallel Part B limit for pump insulin, which works through a different benefit.

The Policy as Operations

For most beneficiaries, the policy involves no paperwork at all, which is its greatest operational strength. There is no application and no income test. The limit is applied by the Part D plan at the pharmacy counter when a prescription for a covered insulin product is processed, and it applies to everyone enrolled in Part D, including people who receive the low-income subsidy (Medicare.gov, n.d.).

The paperwork appears at the edges. The limit applies only to a "covered insulin product," which the statute defines as an insulin product that is a covered Part D drug under the person's plan. An insulin that is not on the plan's formulary is not covered unless the plan grants an exception. To obtain one, the enrollee or prescriber must request an exception, and the prescriber must provide a statement that the formulary alternatives would be less effective for the patient or would cause adverse effects; the plan must grant the exception when it finds the drug medically necessary on that basis (Exceptions Process, 2024). That process is familiar to clinicians and invisible to most patients, who learn about it only after paying full price at the counter.

The second edge is the supplies. Syringes, pen needles and alcohol swabs used to inject insulin are Part D drugs, but they are not insulin products, so they remain subject to the deductible and the plan's normal cost-sharing. No form can move them inside the limit.

Three Groups, Not Two

Policy analyses often divide people into those the policy helps and those it does not. This one needs three groups.

People the policy pays. These are Part D enrollees who use a covered insulin product and were paying more than $35 a month for it. An HHS analysis put this group at roughly 1.5 million people, whose combined Part D savings, applied to 2020 claims, came to $734 million (Sayed et al., 2023). More than 3.3 million Medicare beneficiaries use insulin, so the policy changed the bill for roughly half of them; the rest were already paying $35 or less, many through the low-income subsidy (Centers for Medicare & Medicaid Services, n.d.).

People the policy is meant to reach and misses. These are insulin users whose insulin is not on their plan's formulary and who have not obtained an exception, and every insulin user for the part of their costs that goes to supplies. They are inside the policy's purpose and outside its text.

People who carry the cost. The cost of the limit does not disappear. It moves from the enrollee to the Part D plan and, through federal payments to plans, to taxpayers and to all Part D enrollees through premiums. From 2025, when the IRA's broader redesign of Part D took effect, manufacturers also pay discounts on brand drugs in the benefit, which shifts part of the cost again. Analyses that count only the savings to the first group describe half of the policy.

History Only Where It Explains

One piece of history is needed to understand the policy's effect. From 2021 through 2023, CMS ran the Part D Senior Savings Model, a voluntary test in which participating plans offered insulin at $35 a month as an enhanced benefit. By 2022, 106 plan sponsors participated, and CMS estimated that the benefit was directly available to more than 800,000 enrollees who used insulin (Centers for Medicare & Medicaid Services, n.d.). That matters for analysis: some beneficiaries were already paying $35 before the IRA, so any measured change after January 2023 comes from the people who were not in a participating plan, not from all insulin users.

Effects Nobody Argued For

The most visible development after the IRA was not written into it. During 2023, each of the big three insulin makers announced deep cuts to the list prices of several of their insulins, taking effect in late 2023 and 2024. Advocates have sometimes credited the Medicare limit for these cuts. Nothing in the Medicare limit requires lower list prices; it limits what the patient pays, not what the plan pays the manufacturer. An effect that the policy's supporters did not argue for, and that its mechanism does not produce, needs a different explanation.

Rival Explanations, Named

The strongest rival explanation is a change to Medicaid law. Since 2010, the rebate that manufacturers owe state Medicaid programs on a brand drug had been capped at 100% of the drug's average manufacturer price. The American Rescue Plan Act of 2021 ended that cap for rebate periods beginning on or after January 1, 2024 (American Rescue Plan Act, 2021). For a drug like insulin, whose list price had risen much faster than inflation, the inflation-linked part of the rebate could exceed the price itself once the cap was removed, meaning a manufacturer could owe Medicaid more than it received for each unit. Cutting the list price shrinks that rebate. The timing, price cuts announced in 2023 and effective around January 2024, fits the Medicaid change more closely than the Medicare limit.

A second rival explanation is competitive and political pressure, including state caps, public criticism and the entry of lower-priced insulins. This analysis cannot separate these causes. It can say that the Medicare limit alone is an unlikely explanation for manufacturers' list-price decisions.

What Working Would Look Like

If the Medicare insulin limit is working, three things should be visible. Insulin fills among Medicare beneficiaries should rise relative to a comparable group without the limit, because fewer people ration or skip insulin for cost. Out-of-pocket spending on insulin in Part D should fall, concentrated among people who did not have access to the Senior Savings Model. And, over several years, measures of diabetes control and complications among beneficiaries using insulin should improve relative to a comparison group. An early study found the first of these: after January 2023, insulin fills among Medicare enrollees aged 65 to 74 rose compared with people aged 60 to 64 without Part D (Myerson et al., 2023). The second and third have not yet been shown, and the analysis should not claim them.

References

American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4 (2021).

Centers for Medicare & Medicaid Services. (n.d.). Part D senior savings model. https://www.cms.gov/priorities/innovation/innovation-models/part-d-savings-model

Exceptions Process, 42 C.F.R. § 423.578 (2024).

Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818 (2022).

Medicare.gov. (n.d.). Insulin. Centers for Medicare & Medicaid Services. https://www.medicare.gov/coverage/insulin

Myerson, R., Qato, D. M., Goldman, D. P., & Romley, J. A. (2023). Insulin fills by Medicare enrollees and out-of-pocket caps under the Inflation Reduction Act. JAMA, 330(7), 660-662. https://doi.org/10.1001/jama.2023.12951

Sayed, B. A., Finegold, K., Olsen, T. A., De Lew, N., Sheingold, S., Ashok, K., & Sommers, B. D. (2023). Insulin affordability and the Inflation Reduction Act: Medicare beneficiary savings by state and demographics (Issue Brief). Office of the Assistant Secretary for Planning and Evaluation. https://aspe.hhs.gov/reports/insulin-affordability-ira-data-point