Will Democrats Be Victim Of An October Surprise Of Their Own Making?

For those involved in politics, candidates and parties fear what is known as the October Surprise, a scandal or national or world event that threatens to upend candidacies and partisan control of federal and state bodies. These events can be planned (e.g., by opponents) or unplanned (e.g., a terrorist attack or other world event). With the election very close, especially with the change at the top of the Democratic ticket due to President Biden’s lagging performance, many are thinking these types of events could be potential game changers on Election Day. But are the Democrats forgetting about a potential October Surprise they themselves may have created that could impact their electoral chances? Let me explain.

Medicare enrollment season

Each October, the enrollment season begins for Medicare Advantage (MA) and Part D plans. In the MA world enrollment is fully voluntary for individual policies. In the standalone Part D (PDP) world, most is voluntary but there is some auto-assignment for a group of low-income Americans.

The number of Americans going through this enrollment process is enormous. About 34.1 million people today are in MA and will have to choose to stay in their current plan or change it. About 20.2 million are in the traditional fee-for-service (FFS) program and rely on the standalone PDPs for their retail drug coverage, along with about 2.8 million in MA who are in plans that furnish medical benefits only. These folks as well have to choose to stay or change their PDP in that window.

Plan changes and premiums are announced October 1 for the 2025 calendar year on the Medicare Plan Finder and the window to keep or change plans goes from October 15 to December 7. Election Day (November 5) is just three weeks after the enrollment period begins.

Democrats should fear the potential fallout and media attention around major changes in both MA and PDP benefits and premiums.

MA issues

On the MA front, numerous changes were put in place by the Centers for Medicare and Medicaid Services (CMS):

  • Rates for CY 2024 and 2025 were both negative due to the introduction of a new risk adjustment formula that takes about 7% out of rates over three years.
  • Star performance is lower due to some major changes introduced as well, which also takes money away from plans.
  • New regulatory changes, such as prior authorization restrictions, make it more difficult to save on medical expense.
  • The Inflation Reduction Act’s (IRA) Part D changes add considerably to plan costs by transferring liabilities from the government and beneficiary out-of-pocket (OOP) costs. I have a blog tomorrow that goes into detail on this.

In addition, plans have seen a return of normal utilization and more robust inflation in the healthcare sector since the COVID pandemic waned.

The events above create a perfect storm for MA. No one is arguing MA will not grow; its value will still dwarf traditional FFS.  But most large national plans (over three-quarters of enrollment) have seen their margins contract considerably over the past few years and see storm clouds on the horizon moving forward in MA. For 2025, many said they had to contract geographies, reduce benefits, and raise premiums. Humana and CVS Health are two large plans most concerned about the financial trends. CVS expects it will need to shed as much as 10% of its current enrollment. Centene has struggled in MA for several years. Cigna is exiting, selling to Health Care Service Corporation. Only United Healthcare and Elevance Health have been somewhat more bullish on their MA future.

We don’t know the magnitude of geographic contraction, benefit reductions, or premium changes, but by all accounts these will be considerable. This will have the effect of increasing costs and reducing choices for seniors and those with disabilities in Medicare considerably. Those on fixed incomes could feel the most impact.

Standalone PDP issues

While the increase in costs in the Part D program impacts both MA-PDs and PDPs, the MA-PDs are allowed to comingle Part C and Part D revenues from the government to fashion integrated benefits. The large revenue in Part C protects the smaller Part D benefit in MA-PDs. But standalone PDP plans offer the retail drug benefit only. It is a small part of overall Medicare and PDPs are unable to absorb the huge costs transferred to it in the IRA.

Due in some measure to changes in the IRA already in effect, standalone PDP average monthly enrollment-weighted premiums were expected to jump 21.5% in 2024, from about $40 in 2023 to about $48. Because of existing members switching to and new members enrolling in lower premium plans, the enrollment-weighted average was mitigated to about $43 or about 5%. For sure, people made sacrifices in terms of out-of-pocket (OOP) costs in favor of lower premiums.

Because of other major IRA changes coming in, estimates suggest standalone PDP average monthly enrollment-weighted premiums could go up 50% or 100% (or more) from 2024 to 2025. It is shocking but it makes sense when you examine the new large items in the IRA that transfer costs to plans in 2025. Plan switiching and new enrollment in lower-premium plans could again reduce the projection (again because enrollees opt for lower monthly premiums and higher OOP costs).

In 2024, PDP enrollees faced higher cost-sharing for brand-name drugs as well as diminished plan choices and options. This will continue to be an issue in 2025.

CMS disputes some of the anticipated fallout by pointing to the fact that the IRA had a new premium stabilization subsidy that caps the base premium increase to no more than 6% increase per year from 2024 to 2029. But this is based on the standard Part D benefit. Part D plans enhance beyond the standard benefit and will be on the hook for additional costs due to the transfer of liability to the plans from the government and OOP costs. This will mean additional premiums, cuts to the enhancements, or both.

The possible fallout

In late July, CMS will release some information on how bad the premium impact is in Part D. But the real impact on MA and Part D will be felt as the enrollment season rolls out in October. Beginning October 1 with 2025 plans going live on the Medicare Plan Finder, some 57 million Medicare enrollees will be grappling with fewer plan choices, higher premiums, and diminished benefits in both MA and standalone PDPs. Given complexity, many children of the elderly and disabled assist in Medicare plan decisions each year. If just one non-Medicare eligible American helps each of the 57 million Medicare enrollees, at least 114 million Americans suddenly become aware of huge cost increases in Medicare for everyday Americans. This is about 45% of the voting age population.

No one doubts the value of some of the IRA changes or even some reforms in MA that CMS perhaps had to move on for financial and policy reasons. But some of the changes were not well thought out from both a policy and perhaps political standpoint. While Democrats may attempt to blame “the greedy insurance companies” for the impacts, few Americans will buy that as they grapple with even more healthcare costs in an already high-inflation environment that is eating away at their fixed incomes.

So, the Democrats’ October Healthcare Surprise – created in great measure by themselves, whether through simply running government or lack of looking down the political road so to speak – could have a huge impact on the election. We shall see in a few short months.

#medicareadvantage #partd #pdp #cms #healthinsurance #medicare #election2024 #enrollment #coverage

UPDATE:

To deal with anticipated surging premiums, on July 29 the Centers for Medicare & Medicaid Services (CMS) announced an additional voluntary premium stabilization demonstration program for standalone Part D (PDP) plans. The proposed new premium stabilization program for PDPs features a number of caps and reductions to premiums and enhances risk corridor protections.

— Marc S. Ryan

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