Positioning Part D Drug Plans For Success Under The IRA


We’ve identified five areas that Medicare Advantage plans should consider when shaping their 2025 Part D strategy as the Inflation Reduction Act impacts unfold.

Lindsay Knable, Brooks Conway, Steven Armstrong, and Shannan Brown

5 min read

The industry is still a few years away from knowing the full impact that the Inflation Reduction Act will have on drug prices. But some critical provisions already impacted drug plan sponsors for 2024 and will shape decision-making for 2025.

Beginning in 2024, Part D plan sponsors must reimburse pharmacies based on the lowest available price at the point of sale, effectively eliminating the common practice of payers reducing pharmacy payments through post-point-of-sale direct and indirect remuneration. We analyzed Centers for Medicare and Medicaid Services’ public use files with a primary focus on the non-special needs plan Medicare Advantage prescription drug market to uncover trends in benefit design for 2024 and found five key areas that Medicare Advantage Organizations should consider when shaping their 2025 Part D benefits and strategy:

  • Changes to policies related to pharmacy DIR starting in 2024 have not yet correlated to a decrease in the prevalence of preferred pharmacy networks in the non-SNP MAPD market. This trend was more dramatic between 2022 and 2023, driven largely by a single large carrier eliminating its tiered pharmacy network.
  • Non-SNP MAPD plans continued to invest in offering $0 preferred generic copays and $0 Part D deductibles and maintained $0 premiums in 2024.
  • Large increases in premiums will be seen in the standalone prescription drug plan market for 2024, as carriers will assume a higher proportion of costs.
  • In 2024, most non-SNP MAPD plans (53%) set their copays for insulin drugs, regardless of tier, at the maximum allowable copay of $35 per 30-day supply; however, several organizations are now varying insulin cost sharing across tiers, and also offering a $0 insulin copay on at least one tier.
  • Consistent with prior years, very few MAOs are using formularies that include two specialty tiers, despite this flexibility having now been available for several years.

Preferred pharmacy networks

Maximizing pharmacy direct and indirect remuneration has been a primary value proposition associated with offering a tiered pharmacy network, which has increasingly incentivized Medicare Advantage prescription drug plans to negotiate these arrangements over the last several years. Requiring plans to now reimburse pharmacies at the lowest available price at the point of sale effectively eliminates the practice. However, this change doesn’t seem to have caused widespread abandonment of preferred pharmacy networks.

Our examination of CMS data found that the number of MAPD plans using a tiered pharmacy network decreased by nearly 15 percentage points between 2022 and 2024. A significant portion of the decline — roughly 13 percentage points — was seen in 2023, with changes to Humana’s pharmacy network accounting for 90% of the decrease. This trend continued into 2024, though to a much lower degree, with a few carriers — most notably UnitedHealthcare — changing to an open network for some of their plans. Similarly, the PDP market, which historically has been dominated by preferred pharmacy network offerings, will see a 5% decline in the number of plans using a preferred pharmacy network in 2024, driven in large measure by Humana eliminating their preferred network for a subset of their products.

Exhibit 1: Distribution of plans by pharmacy network type

Source: Oliver Wyman analysis

Preferred Generic Coverage and Part D Deductibles

In most markets, $0 preferred generic coverage and a $0 Part D deductible remain key focus areas for MAPD plan reinvestment. These are not only attractive benefits for beneficiaries but also remove barriers to access, drive medication adherence and better outcomes, encourage the use of more cost-effective generic alternatives, and improve performance on Medicare Stars. While this varies by region, we saw a significant increase between 2022 and 2024 in plans nationwide offering preferred generic drugs at a $0 copay, notably Humana, UnitedHealthcare and Kaiser Permanente. We also saw a nine-percentage point increase in the number of plans offering a $0 Part D deductible in 2023, with nearly 40% of the plans belonging to UnitedHealthcare. The proportion of plans available with a $0 Part D deductible held relatively steady from 2023 to 2024.

Exhibit 2: Distribution of plans offering $0 preferred generic or $0 Part D deductible

Source: Oliver Wyman analysis

Member premiums

It’s common for MAPDs to offer plans at a $0 member premium. In 2022, about 60% of non-SNP MAPD plans nationwide were available with a $0 premium. That increased to nearly two-thirds of non-SNP MAPD plans in 2023 and will hold steady for 2024.

By contrast, large increases in premiums will be seen in the PDP market for 2024, as carriers will assume a higher proportion of costs and do not have the option of buying down Part D premiums with Part C rebates. Also, PDPs, which do not have the same influence over diagnosis coding as MAPDs, tend to have lower risk scores. Because of changes to the Part D benefit design resulting from the IRA, PDPs in 2025 are not expected to realize the same amount of offsetting increase in risk-adjusted direct subsidy payments that an MAPD plan would, all other things being equal.

Exhibit 3: Distribution of member premiums

Source: Oliver Wyman analysis

Insulin coverage

An overwhelming number of non-SNP MAPD plans — 94% — will offer insulins on the preferred brand formulary tier in 2024 at the $35 maximum copay established under the IRA. Some MAOs reduced this copay below $35, including 1% offering a $0 copay for insulins on the preferred brand tier.

However, plans are allowed to place insulins on more than one formulary tier. We found that 35% of plans nationwide will offer a $0 copay for select insulins on at least one formulary tier. As with many MAPD plan and formulary design elements, considerable regional variation exists. Specific markets where coverage of insulins at a $0 copay on at least one tier will be most prevalent include Florida (58% of plans), Illinois (40%), Arizona (42%), and Puerto Rico (97%). From a payer perspective, Humana appears to be one major carrier offering $0 insulin copays, with 78% of their 2024 MAPD plans including at least one tier with a $0 copay.

Looking ahead to 2025, in addition to evaluating local competitor offerings, MAOs should consider the programs they have in place to support better health outcomes for insulin-dependent diabetics, and tie further changes in benefit design to internal capability development roadmaps.

Exhibit 4: Distribution of cost sharing for covered insulins

Source: Oliver Wyman analysis

Specialty tiers

Starting with calendar year 2021, CMS allowed plans to include both a preferred specialty and non-preferred specialty tier on their formularies. A limited number of MAOs have taken advantage of this flexibility in their formulary and contracting strategies. By adding a preferred specialty tier, plans may be able to position themselves to negotiate better pricing and rebates with manufacturers of some of the most expensive drugs in exchange for preferred formulary placement. This may also present opportunities for plans to better differentiate products between the non-preferred brand and specialty tiers, while also opening more flexibility around formulary and benefit design. Adopting these changes, however, requires careful consideration as limitations on member cost sharing for these tiers may increase plan costs. Plans would need to holistically evaluate the net impact of any formulary and benefit changes against changes in member cost sharing, negotiated prices and rebates, adherence, and member impact.

While we expect 2025 to be a unique and unpredictable year with regards to Part D benefit design and strategy, we don’t expect a majority of MAPD plans will significantly reduce the richness of their Part D benefits. Rather, we expect MAPD plans to rely more heavily on Part C levers — such as supplemental benefit changes and medical cost containment efforts — as well as other programs and efforts to offset headwinds. That could include enhancing the accuracy of Part D risk scores or implementing more stringent utilization management. It will be critical for MAOs to evaluate the 2024 CMS Public Use Files, 2024 enrollment period data, internal capabilities, and other emerging information throughout the upcoming bid season to set themselves up for success.