Low income disruption and the $0 premium introduction: 2024 individual Medicare PDP market turbulence
The standalone Prescription Drug Plan (PDP) market first offered plans in 2006, quickly increasing the number of offerings in 2007 by more than 30% to 1,866 plans.1 Over time, the number of plan offerings and participating carriers has declined substantially, with only 709 PDPs offered in 2024. Mirroring the decline in plan counts, the percentage of Part D beneficiaries enrolled in PDPs has declined, with only 42% of individual Part D beneficiaries enrolled in PDPs in 2023, a percentage that has steadily declined from 75% at the Part D program’s outset in 2006. This paper illustrates notable PDP market trends through examples from the 2024 plan offerings.
The market continues to consolidate with Elixir’s exit and sanctions for Clear Spring Health
Continuing the historical trends of consolidation and enrollment concentration in the largest national carriers, Rite Aid will exit the market while Clear Spring Health (Clear Spring) will be under sanctions in 2024.
Rite Aid’s Elixir is exiting the individual PDP market in 2024.
As of September 2023, Rite Aid is the seventh-largest PDP carrier, enrolling over 270,000 members across 34 regions. Rite Aid recently filed for Chapter 11 bankruptcy.2 While it expects to continue to offer employer group plans, serve its customers, and operate its stores, Rite Aid has decided to terminate its Elixir PDPs effective January 1, 2024.
On October 13, 2023, CMS notified Clear Spring its PDP contract will be under intermediate sanctions beginning October 29, 2023, and will be terminated as of December 31, 2024.3
The intermediate sanctions include “suspension of enrollment of Medicare beneficiaries into Clear Spring’s contract” and the memo from the Centers for Medicare and Medicaid Services (CMS) specifically cites consecutive years with a low star rating as the cause for termination. Clear Spring does have an opportunity to review and seek corrections to data underlying star ratings calculations. As of September 2023, Clear Spring’s PDP enrolls over 450,000 members.
Immense basic plan disruption may result in plan changes for over 2 million low-income subsidy (LIS) beneficiaries
The number of basic PDPs below the regional low-income benchmark (LIB) decreases from 173 in 2023 to 109 in 2024.
In 2024, there is potential for over 2 million LIS beneficiary reassignments. This includes both automatically assigned (auto-enrollees) and voluntarily enrolling beneficiaries, where only the former would be automatically reassigned if they do not otherwise select a plan.
Figure 1: Number of basic PDPs below regional LIBs by year, 2020-2024
Note: Clear Spring is included in Figure 1, with 33 basic PDPs below regional benchmarks, but is under sanctions and is not expected to receive auto-enrollees for calendar year (CY) 2024. Rite Aid’s Elixir PDPs are not included in the 2024 basic PDPs in Figure 1.
What is unique about LIS enrollment?
• LIS beneficiaries who do not select a plan are auto-enrolled in basic PDPs below regional LIBs.
• LIBs are set for 34 U.S. regions where some regions span multiple states.
• Plans previously under the LIB but with premiums up to $2 greater than the LIB (de minimis) can elect to forgo the difference in premium to retain auto-enrolled beneficiaries. De minimis plans cannot receive new auto-enrollees.
• Auto-enrollees in plans with premiums greater than the LIB and not de minimis are moved to basic PDPs below the LIB unless the beneficiary elects a specific plan for enrollment.
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Figure 1 displays the count of plans that are below their respective regional LIB. These plans can continue to enroll automatically assigned enrollees by being below the regional LIB. Auto-enrollees, historically representing a large majority of LIS members enrolled in basic PDPs, will be reassigned to other plans under the LIB for 2024, unless they voluntarily enroll in another plan during open enrollment, including their 2023 plan. The numbers of basic PDPs below regional LIBs in 2023 and 2024 by national carrier are shown in Figure 2.
Figure 2: Number of basic PDPs below regional LIBs by national carrier, 2023–2024
Note: Rite Aid is exiting the PDP market January 1, 2024. Clear Spring is included in Figure 2, with 33 basic PDPs below regional benchmarks, but is under sanctions and is not expected to receive auto-enrollees for CY2024.
Aetna’s SilverScript Choice premium is below the LIB in only six regions for 2024 compared to 30 in 2023.
This plan has the greatest nationwide enrollment of any PDP, with approximately 2.7 million beneficiaries as of September 2023. Potentially, 1.25 million LIS beneficiaries could be reassigned during 2024 open enrollment.
WellCare and Clear Spring are the only carriers with basic plans below the LIB in at least 30 regions.
WellCare is below the LIB in 30 regions and de minimis in four regions, while Clear Spring is only above the LIB in New York. Clear Spring’s sanctions prevent the carrier from enrolling new beneficiaries, including auto-enrollees, beginning October 29, 2023. In Nevada, Clear Spring is the only carrier with a basic PDP below the LIB. Though it is unprecedented to not have any basic PDPs below the LIB, we expect auto-enrollees to be enrolled in the basic PDP with the lowest premium, which is WellCare Classic PDP.4
2024 marks an acceleration of a trend toward fewer carriers under the LIBs. Humana and UnitedHealthcare (UHC) have steadily reduced their number of plans competing for auto-enrollees the past few years, both contributing to the drop in plans under the LIB between 2021 and 2022 shown in Figure 1 above.
While every carrier has a different basic PDP strategy, two market forces have likely accelerated this trend in recent years:
- Over time, LIS enrollment has shifted toward dual-eligible special needs plans (D-SNPs), integrating healthcare services across both Medicare and Medicaid for dually eligible beneficiaries. As the LIBs are an enrollment-weighted average of all LIS beneficiaries, the LIBs increasingly reflect the costs of D-SNPs, which tend to have higher premiums compared to basic PDPs. This trend highlights the increasing preference of both carriers and beneficiaries toward integrated Medicare Advantage and prescription drug (MA-PD) plans due to the ability to coordinate medical and pharmacy care. Additionally, the majority of D-SNPs now offer a benefit through the CMS Value-Based Insurance Design (VBID) program, effectively removing cost sharing for LIS members, which may accelerate the migration of LIS lives toward D-SNPs.
- Legislative and regulatory changes increase pressure on LIS costs relative to their associated revenue. In 2024, the Inflation Reduction Act of 2022 (IRA) increases plan liability without any corresponding changes to the risk model, though we expect the risk model to be adjusted for 2025. This disproportionately impacts plans that enroll LIS beneficiaries, given they generally have higher Part D costs than non-LIS beneficiaries. Additionally, pharmacy rebates are required to be reflected at the point of sale for the first time in 2024 as a result of the 2023 CMS Final Rule.5 This rule likely contributed to the inability or unwillingness of some carriers to bid below the LIB in some regions, given the importance of pharmacy rebates in lowering premium for some carriers.
Average 2024 PDP premiums will increase by 21%—$5.12 per member per month (pmpm)—relative to 2023, despite the first $0 premium PDP offering in history
Beneficiaries typically migrate to plans with lower premiums during open enrollment, though plan migration is unlikely to offset the entirety of the 21% increase in premiums. Figure 3 displays the average PDP premiums from 2020 to 2024, before and after beneficiary elections during open enrollment. The difference between the “before” and “after” open enrollment premiums illustrates the impact of member migration to lower premium plans.
Figure 3: Average monthly PDP premium before and after open enrollment, 2020-2024
Note: For each year, September enrollment of the previous year is used for “Before Open Enrollment” and February enrollment of the contract year is used for “After Open Enrollment.”
National carrier premium changes vary widely, though three major carriers have products with increases higher than the 21% average.
Notable increases in premium include a 102% ($30.08 per month) increase for UHC’s AARP MedicareRx Walgreens plan, a 49% ($16.13 per month) increase for Aetna’s SilverScript Choice plan, and a 30% ($24.79 per month) increase for Humana’s Premier Rx plan. Combined, these three plans comprise approximately 24% of the individual PDP market enrollment in September 2023.
WellCare will offer the first PDP with $0 premium in 14 regions and a $0.50 or lower monthly premium in the majority of other regions.
In contrast to nearly every other PDP on the market, WellCare’s average nationwide monthly premium decreases for its Value Script plan by almost $10 relative to 2023.
Basic PDPs have the most significant increases in premiums.
Four of the top five national carriers have premium increases above 35% for basic plans, resulting in an aggregate basic premium increase of 33% across the PDP market. Notably, WellCare, Clear Spring, and some regional carriers have lower combined premium changes.
Potential driving forces
The aggregate changes and pervasive premium increases across the individual PDP market are likely driven by primarily by the IRA and the CMS 2023 Final Rule discussed above, increasing plan liability and eliminating pharmacy rebates after the point of sale, respectively. Despite the IRA’s premium stabilization provision limiting the base beneficiary premium to 6%, individual plans’ basic and total premiums can increase beyond the 6% limit due to disproportionate impacts of market changes (such as a greater proportion of LIS beneficiaries, as noted above) or due to supplemental benefit premiums. Furthermore, if pharmacy rebates were more prevalent for national PDP carriers than other plans, then the CMS Final Rule may have disproportionately driven premium increases for those carriers.
Conversely, WellCare, Aetna, and Cigna typify the historical trend to remain competitively priced for non-LIS beneficiaries seeking low-cost coverage in the PDP market. In recent years, many PDPs with premiums far below the market average have experienced enrollment growth. Despite general market trends to increase premiums significantly in 2024, these three carriers continue to offer an enhanced PDP with an average premium below $20.
2025 will usher in more unknowns as the IRA introduces substantial changes
While market exits can be attributed to factors beyond the particular pressures all Part D plans face, they exemplify how difficult it can be to continue to offer PDPs year over year as the market continues to consolidate. As noted above, the number of PDP offerings has decreased significantly over time and enrollment has become more concentrated among national carriers. The continued and persistent decrease of carriers in this market continues to highlight the robust strategy needed to ensure long-term financial success.
While 2024 will certainly be a turbulent year for PDP enrollment, 2025 may result in even more significant changes. The substantial increases to plan liability, the lower maximum out-of-pocket limit, changes to the Part D risk score model, and the ability for beneficiaries to spread cost sharing throughout the year all present unknowns as to how carriers will react, modify strategies, and evaluate both the Medicare Advantage and PDP markets. Carriers and other stakeholders focused on understanding the short-term and long-term implications of PDP market changes will be best equipped to limit downside risk to their business model and may even be poised to capitalize on the uncertainty.
Caveats, limitations, and qualifications
The information in this paper is intended to describe premium changes and trends in the Medicare PDP market. It may not be appropriate, and should not be used, for other purposes.
We relied on publicly available enrollment and premium data from the Centers for Medicare and Medicaid Services (CMS) to support the data presented in this paper. If this information is incomplete or inaccurate, our observations and comments may not be appropriate. We reviewed the data for reasonability but did not audit the data.
Maddie Cline and Jake Klaisner are members of the American Academy of Actuaries and meet the qualification standards of the American Academy of Actuaries to render the actuarial opinion contained herein.
1 Excluding United States territories.
2 Hirsch, Laruen and Holman, Jordyn (October 15, 2023) Rite Aid, Facing Slumping Sales and Opioid Suits, Files for Bankruptcy. New York Times.. Retrieved November 7, 2023 from https://www.nytimes.com/2023/10/15/business/rite-aid-bankruptcy.html. (subscription required).
3 CMS (October 13, 2023). Notice of Termination and Intermediate Sanctions (Suspension of Enrollment and Marketing) for Prescription Drug Plan Contract Number: S6946 [Clear Spring Health Insurance Company]. Retrieved November 22, 2023, from https://www.cms.gov/files/document/clear-spring-termination-sanction-10132023.pdf.
4 Social Security. Premium and Cost-Sharing Subsidies for Low-Income Individuals. Retrieved November 22, 2023, from https://www.ssa.gov/OP_Home/ssact/title18/1860D-14.htm.
5 The full text of the CMS 2022 Final Rule is available at https://public-inspection.federalregister.gov/2022-09375.pdf.
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Low income disruption and the $0 premium introduction: 2024 individual Medicare PDP market turbulence
We review trends in the Medicare PDP market, including steady declines in the number of plans and carriers as well as the percentage of Part D members enrolled in standalone prescription drug plans.