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Medicare’s Recovery Process

Medicare does not pay for items or services to the extent that payment has been, or may reasonably be expected to be, made through a liability insurer (including a self-insured entity), no-fault insurer or workers' compensation entity (Non-Group Health Plan (NGHP). When an accident/illness/injury occurs, you must notify the Benefits Coordination & Recovery Center (BCRC).

The BCRC is responsible for ensuring that Medicare gets repaid for any conditional payments it makes. A conditional payment is a payment Medicare makes for services another payer may be responsible for. Medicare makes this conditional payment so you will not have to use your own money to pay the bill. The payment is "conditional" because it must be repaid to Medicare when a settlement, judgment, award, or other payment is made. For information on when to contact the BCRC for assistance with Medicare recovery, click the Non-Group Health Plan Recovery  link. This link can also be used to access additional information and downloads pertaining to NGHP Recovery.

The process of recovering conditional payments from the Medicare beneficiary typically, involves the following steps:

1. Reporting the case to the BCRC:

Whenever there is a pending liability, no-fault, or workers’ compensation case, it must be reported to the BCRC. Reporting the case is the first step in the Medicare Secondary Payer (MSP) NGHP recovery process. Click the Liability, No-Fault and Workers’ Compensation Reporting link for more information.

Once the case has been reported, the BCRC will collect information from multiple sources to research the MSP situation, as appropriate (e.g., information is collected from claims processors, Medicare, Medicaid, and SCHIP Extension Act (MMSEA Section) 111 Mandatory Insurer Reporting submissions, and worker’s compensation entities).

If the BCRC determines that the other insurance is primary to Medicare, they will create an MSP occurrence and post it to Medicare’s records. If the MSP occurrence is related to an NGHP, the BCRC uses that information as well as information from CMS’ systems to identify and recover Medicare payments that should have been paid by another entity as primary payer.

2. BCRC issues a Rights and Responsibilities letter:

After the MSP occurrence is posted, the BCRC will send you the Rights and Responsibilities (RAR) letter. The RAR letter explains what information is needed from you and what information you can expect from the BCRC. A copy of the Rights and Responsibilities Letter can be found in the Downloads section at the bottom of this page. Please note: If Medicare is pursuing recovery directly from the insurer/workers’ compensation entity, you and your attorney or other representative will receive recovery correspondence sent to the insurer/workers’ compensation entity. For more information on insurer/workers’ compensation entity recovery, click the Insurer Non-Group Health Plan Recovery link.

Medicare does not release information from a beneficiary’s records without appropriate authorization. If you have an attorney or other representative, he or she must send the BCRC documentation that authorizes them to release information. Your attorney or other representative will receive a copy of the RAR letter and other letters from the BCRC as long as he or she has submitted a Consent to Release form. A Consent to Release (CTR) authorizes an individual or entity to receive certain information from the BCRC for a limited period of time. With that form on file, your attorney or other representative will also be sent a copy of the Conditional Payment Letter (CPL) and demand letter. If your attorney or other representative wants to enter into additional discussions with any of Medicare’s entities, you will need to submit a Proof of Representation document. A Proof of Representation (POR) authorizes an individual or entity (including an attorney) to act on your behalf. Note: In some special circumstances, the potential third-party payer can submit Proof of Representation giving the third-party payer permission to enter into discussions with Medicare’s entities. If potential third-party payers submit a Consent to Release form, executed by the beneficiary, they too will receive CPLs and the demand letter. It is in the best interest of both sides to have the most accurate information available regarding the amount owed to the BCRC. Please see the following documents in the Downloads section at the bottom of this page for additional information: POR vs. CTR, Proof of Representation Model Language and Consent to Release Model Language .

3. BCRC identifies Medicare’s interim recovery amount and issues the CPL:

The BCRC begins identifying claims that Medicare has paid conditionally that are related to the case, based upon details about the type of incident, illness or injury alleged. Medicare's recovery case runs from the “date of incident” through the date of settlement/judgment/award (where an “incident” involves exposure to or ingestion of a substance over time, the date of incident is the date of first exposure/ingestion).

Within 65 days of the issuance of the RAR Letter, the BCRC will send the CPL and Payment Summary Form (PSF). The PSF lists all items or services that Medicare has paid conditionally which the BCRC has identified as being related to the pending case.

The CPL explains how to dispute any unrelated claims and includes the BCRC’s best estimate, as of the date the letter is issued, of the amount Medicare should be reimbursed (i.e., the interim total conditional payment amount). The conditional payment amount is considered an interim amount because Medicare may make additional payments while the case is pending. If there is a significant delay between the initial notification to the BCRC and the settlement/judgment/award, you or your attorney or other representative may request an “interim conditional payment letter” which lists the claims paid to date that are related to the case. For more information about the CPL, refer to Conditional Payment Letters (Beneficiary) in the Downloads section at the bottom of this page.

You can also obtain the current conditional payment amount from the BCRC or the Medicare Secondary Payer Recovery Portal (MSPRP). To obtain conditional payment information from the BCRC, call 1-855-798-2627. Click the MSPRP link for details on how to access the MSPRP.

4. BCRC issues a Conditional Payment Notification (CPN):

If a settlement, judgment, award, or other payment has already occurred when you first report the case, a CPN will be issued. A CPN will also be issued when the BCRC is notified of settlement, judgement, award or other payment through an insurer/workers’ compensation entity’s MMSEA Section 111 report. The CPN provides conditional payment information and advises you on what actions must be taken. You have 30 calendar days to respond. The following items must be forwarded to the BCRC if they have not previously been sent:

  • Proof of Representation/Consent to Release documentation, if applicable;
  • Proof of any items and services that are not related to the case, if applicable;
  • All settlement documentation if the beneficiary is providing proof of any items and services not related to the case;
  • Procurement costs (attorney fees and other expenses) the beneficiary paid; and
  • Documentation for any additional or pending settlements, judgments, awards, or other payments related to the same incident.

If a response is received within 30 calendar days, it will be reviewed and the BCRC will issue a demand (request for repayment) as applicable.  If a response is not received in 30 calendar days, a demand letter will automatically be issued without any reduction for fees or costs. For more information about the CPN, refer to the document titled Conditional Payment Notice (Beneficiary) in the Downloads section at the bottom of this page.

5. Dispute Process:

If you or your attorney or other representative believe that any claims included on CPL/PSF or CPN should be removed from Medicare's interim conditional payment amount, documentation supporting that position must be sent to the BCRC. This process can be handled via mail, fax, or the MSPRP. Click the MSPRP  link for details on how to access the MSPRP. The BCRC will adjust the conditional payment amount to account for any claims it agrees are not related to the case.

Please allow 45 calendar days for the BCRC to review the submitted disputes and make a determination. During its review process, if the BCRC identifies additional payments that are related to the case, they will be included in a recalculated Conditional Payment Amount and updated CPL. If CMS determines that the documentation provided at the time of the dispute is not sufficient, the dispute will be denied. You and your attorney or other representative will receive a letter explaining Medicare’s determination once the review is complete.

Note: When resolving a workers’ compensation case that may include future medical expenses, you need to consider Medicare’s interests. The recommended method to protect Medicare’s interests is a Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA). A WCMSA is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness or disease. For more information regarding a WCMSA, please click the WCMSA  link.

6. BCRC issues a recovery demand letter:

When there is a settlement, judgment, award, or other payment, you or your attorney or other representative should notify the BCRC. The information sent to the BCRC must clearly identify: 1) the date of settlement, 2) the settlement amount, and 3) the amount of any attorney's fees and other procurement costs borne by the beneficiary (Medicare may only take beneficiary-borne costs into account). When submitting settlement information, the Final Settlement Detail document may be used. This document can be found in the Downloads section at the bottom of this page. Contact information for the BCRC can be found by clicking the Contacts  link. Settlement information may also be submitted electronically using the MSPRP. Click the MSPRP  link for details on how to access the MSPRP.

The BCRC will apply a termination date (generally the date of settlement, judgment, award, or other payment) to the case. The BCRC will identify any new, related claims that have been paid since the last time the CPL was issued up to and including the settlement/judgment/award date. Once this process is complete, the BCRC will issue a formal recovery demand letter advising you of the amount of money owed to the Medicare program. The amount of money owed is called the demand amount. The demand letter includes the following:

  • The beneficiary’s name and Medicare Number;
  • Date of accident/incident;
  • A summary of conditional payments made by Medicare; and
  • The total demand amount and information on applicable waiver and administrative appeal rights.

For additional information about the demand process and repaying Medicare, click the Reimbursing Medicare  link. Also, if you are settling a liability case, you may be eligible to obtain Medicare’s demand amount prior to settlement or you may be eligible to pay Medicare a flat percentage of the total settlement. Please see the Demand Calculation Options page to determine if your case meets the required guidelines.

7. Assessment of Interest and Failure to Respond

Interest accrues from the date of the demand letter and, if the debt is not repaid or otherwise resolved within the time period specified in the recovery demand letter, is assessed for each 30 day period the debt remains unresolved. Payment is applied to interest first and principal second. Interest continues to accrue on the outstanding principal portion of the debt. If you request an appeal or a waiver, interest will continue to accrue. You may choose to pay the demand amount in order to avoid the accrual and assessment of interest. If the waiver/appeal is granted, you will receive a refund.

Failure to respond within the specified time frame may result in the initiation of additional recovery procedures, including the referral of the debt to the Department of Justice for legal action and/or the Department of the Treasury for further collection actions.

Checks should be made payable to Medicare. All correspondence, including checks, must include your name and Medicare Number and should be mailed to the appropriate address.

8. Referral of debt to the Department of Treasury

You will be notified of a delinquency through an Intent to Refer letter (a notice of the BCRC’s intent to refer the debt to the Department of Treasury Offset Program for further collection activities). The Intent to Refer letter is sent day 90 (after demand letter) if full payment or Valid Documented Defense is not received.

If full repayment or Valid Documented Defense is not received within 60 days of Intent to Refer Letter (150 days of demand letter), debt is referred to Treasury once any outstanding correspondence is worked by the BCRC. Note: CMS may also refer debts to the Department of Justice for legal action if it determines that the required payment or a properly documented defense has not been provided. The law authorizes the Federal government to collect double damages from any party that is responsible for resolving the matter but which fails to do so.

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This license will terminate upon notice to you if you violate the terms of this license. The AMA is a third party beneficiary to this license.

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Coordination of Benefits & Third Party Liability

Related resources.

  • Claims Under the Camp Lejeune Justice Act (CLJA)
  • Medicaid Medical Support Requirements and Implementation Strategies Slide Deck
  • Summary of Federal Statutory Requirements
  • Summary of Federal Regulatory Requirements
  • CFR Subpart D, Third Party Liability  
  • Guide to Effective State Agency Practices 2014
  • Guide to Effective State Agency Practices 2015
  • Frequently Asked Questions
  • 2020 COB/TPL Handbook

It is possible for Medicaid beneficiaries to have one or more additional sources of coverage for health care services. Third Party Liability (TPL) refers to the legal obligation of third parties (for example, certain individuals, entities, insurers, or programs) to pay part or all of the expenditures for medical assistance furnished under a Medicaid state plan. By law, all other available third party resources must meet their legal obligation to pay claims before the Medicaid program pays for the care of an individual eligible for Medicaid. States are required to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services that are available under the Medicaid state plan. The Deficit Reduction Act of 2005 included several additional provisions related to TPL and coordination of benefits for Medicaid beneficiaries. For more information on Medicaid TPL and COB, see our  Frequently Asked Questions . For detailed information about COB/TPL policies, see our  2020 COB/TPL Handbook .

Coordination of Benefits

Coordination of Benefits (COB) refers to the activities involved in determining Medicaid benefits when an enrollee has coverage through an individual, entity, insurance, or program that is liable to pay for health care services. Individuals eligible for Medicaid assign their rights to third party payments to the State Medicaid Agency.

Examples of third parties which may be liable to pay for services:

  • Group health plans
  • Self-insured plans
  • Managed care organizations
  • Pharmacy benefit managers
  • Court-ordered health coverage
  • Settlements from a liability insurer
  • Workers' compensation
  • Long-term care insurance
  • Other state or Federal coverage programs (unless specifically excluded by law)

Identification of Third Parties

States gather information regarding potentially liable third parties, including information about other sources of health coverage, when individuals apply for medical assistance. This information is periodically updated whenever a Medicaid enrollee's eligibility is renewed.    

Data Matching

States conduct data matches to identify third party resources. States must have laws in place that require health insurers to provide their plan eligibility and coverage information to Medicaid programs. For example, states conduct data matches with public entities, such as the Department of Defense, to identify Medicaid enrollees and/or their dependents that have coverage through the Military Health Services system and the TRICARE program. States also match with workers' compensation and state motor vehicle accident files. These matches can identify Medicaid enrollees that have sustained injuries which may be covered through workers' compensation or through an automobile insurance policy. State child support agencies are required to notify the Medicaid agency whenever a parent has acquired health coverage for child as a result of a court order.  

State Medicaid Programs and Use of Contractors for Data Matching

State Medicaid programs may enter into data matching agreements directly with third parties or may obtain the services of a contractor to complete the required matches. When the state Medicaid program chooses to use a contractor to complete data matches, the program delegates its authority to obtain information from third parties to the contractor.

Third parties should treat a request from the contractor as a request from the state Medicaid agency. Third parties may request verification from the State Medicaid agency that the contractor is working on behalf of the agency and the scope of the delegated work.

COB/TPL Guidance

  • Guidance to State Medicaid Agencies on Dually Eligible Beneficiaries Receiving Medicare Part B Marriage and Family Therapist Services, Mental Health Counselor Services, and Intensive Outpatient Services Effective January 1, 2024 December 2023
  • Third-Party Liability in Medicaid: State Compliance with Changes Required in Law and Court Ruling s April 2023
  • Third Party Liability in Medicaid: State Compliance with Changes Required in Bipartisan Budget Act of 2018 and Medicaid Services Investment and Accountability Act of 2019 August 2021
  • Notice of Proposed Rulemaking: Value-based Purchasing (VBP) and Drug Utilization Review (DUR) Proposed Regulation CMS-2482-P  June 2020
  • CIB: Guidance for State Medicaid Agencies on Dually Eligible Beneficiaries Receiving Medicare Opioid Treatment Services December 2019
  • Guidance to Medicaid Bipartisan Budget Act (BBA) of 2018 and changes to Medicaid Provisions Passed in April 2019 – Third Party Liability in Medicaid and CHIP  November 2019

Managed Care and Third Party Liability

The contract language between the State Medicaid agency and the Managed Care Organization (MCO) dictates the terms and conditions under which the MCO assumes TPL responsibility. Generally, TPL administration and performance activities that are the responsibility of the MCO will be set by the state and should be accompanied by state oversight.

There are four basic approaches to carrying out TPL functions in a managed care environment.  

  • Enrollees with any other insurance coverage are excluded from enrollment in managed care
  • Enrollees with other insurance coverage are enrolled in managed care and the state retains TPL responsibilities
  • Enrollees with other insurance coverage are enrolled in managed care and TPL responsibilities are delegated to the MCO with an appropriate adjustment of the MCO capitation payments
  • Enrollees and/or their dependents with commercial managed care coverage are excluded from enrollment in Medicaid MCOs, while TPL for other enrollees with private health insurance or Medicare coverage is delegated to the MCO with the state retaining responsibility only for tort and estate recoveries

MCOs and Data Matching

State Medicaid programs may contract with MCOs to provide health care to Medicaid beneficiaries, and may delegate responsibility and authority to the MCOs to perform third party discovery and recovery activities. The Medicaid program may authorize the MCO to use a contractor to complete these activities.

When TPL responsibilities are delegated to an MCO, third parties are required to treat the MCO as if it were the State Medicaid agency, including:

  • Providing access to third party eligibility and claims data to identify individuals with third party coverage
  • Adhering to the assignment of rights from the state to the MCO of a Medicaid beneficiary’s right to payment by such insurers for health care items or services
  • Refraining from denying payment of claims submitted by the MCO for procedural reasons

Third parties may request verification from the state Medicaid agency that the MCO or its contractor is working on behalf of the agency and the scope of the delegated work.

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  • >> Opinion

COMMENTARY: AARP’s 2024 Great Senior Scare

Only in Washington can Congress’s bipartisan efforts to combat fraud in Medicare and Social Security cause alarm from organizations claiming to be advocates for seniors.

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A recent AARP fundraising letter shows how much AARP fears congressional efforts to combat fraud in these programs. It amounts to scaremongering among America’s seniors.

Congress is reasonably concerned about the national debt, estimated at $34 trillion. Spending cuts are one tool Congress can use to reduce debt. Another tool is tax increases. Neither approach is popular with voters. Other ways Congress can lessen the debt is to combat Medicare and Social Security fraud and reduce government administrative costs. These two ideas are popular with working Americans and some senior groups.

AARP’s 2024 Great Senior Scare letter does not mention fraud in the programs.

In 2023, Forbes estimated Medicare and Medicaid fraud was more than $100 billion annually. In 2023, the Social Security Administration reported that it paid $1.3 billion to workers who were wrongfully determined to be disabled. Medicare and Social Security fraud are serious problems that Congress needs to address. AARP needs to work with Congress to combat fraud.

Fraud in Medicare and Social Security is an important issue for seniors. Why is Medicare and Social Security fraud not important to Jo Ann C. Jenkins, AARP’s CEO?

In her two-page, 19-paragraph 2024 Great Senior Scare letter, Jenkins fails to mention fraud in the programs. By failing to address fraud, Jenkins writes as though she wants Congress to continue paying billions to companies, physicians and individuals who defraud the programs. What she does not fail to do is ask seniors for financial donations to fund AARP.

“Like many, you may believe politicians will never actually cut your Social Security and Medicare. But right now, there is a growing bipartisan interest for a commission in Congress that could lead to cuts in Social Security and Medicare in order to reduce our country’s debt,” Jenkins writes in her 2024 Great Senior Scare letter.

It is Congress’ job to identify and eliminate program fraud and assure taxpayers that criminals are prosecuted. These actions could restore some public confidence in the federal government.

When Medicare and Social Security are defrauded, it increases the costs of the programs and the national debt. When leaders such as Jenkins fail to acknowledge a need for Congress to combat fraud in Medicare and Social Security, AARP members could question her leadership ability. She should give AARP members guidance on reporting Medicare and Social Security fraud. She should provide Congress her recommendations on fighting fraud in Medicare and Social Security.

Intergovernmental Social Security and Medicare fraud are seldom discussed and difficult to prevent. Federal employees injured at work have insurance coverage from their employer through the Department of Labor’s Office of Workers’ Compensation Programs. If Labor’s bureaucrats or contractors accidentally deny claims, the Coordination of Benefits and Recovery Act (COBRA) allows Medicare and other insurers to recover payments for “misbilled” claims from Labor or the Treasury.

COBRA has saved Medicare billions of dollars. However, it should not take added bureaucracy to combat Medicare and Social Security fraud.

Bureaucracy is not the solution to ending fraud in Medicare and Social Security. Bureaucracy often enables fraud by burying it under more bureaucracy. A 2023 Senate report documented $900 billion in dubious government-funded research and improper federal payments. Federal bureaucrats and contractors need better management and training to prevent such staggering losses.

In her 2024 Great Senior Scare letter, Jenkins wants AARP members to send her a financial contribution “to support our efforts.” Until she offers AARP members and Congress recommendations on fighting fraud in Medicare and Social Security, seniors should question whether Jenkins deserves any donations.

Americans should demand that Congress fight and eliminate fraud in Medicare and Social Security. America’s seniors deserve the retirement security they worked so hard to obtain.

James Patterson is an American author. He wrote this for InsideSources.com.

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The wrongdoing was against the entire state of Nevada. So it should not make any difference in which county someone said and did what.

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The courage of Alexei Navalny, 1976-2024.

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The student loan program has myriad issues, but allowing borrowers to renege on their obligations isn’t the way to solve them.

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Coalition Backing Bill to Improve Administration of Medicare with Workers’ Comp

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A coalition representing a group of stakeholders voiced support of the introduction this week of the “Coordination of Medicare Payments and Workers’ Compensation Act” or the “COMP Act.”

The bi-partisan legislation introduced by Representatives Mike Carey (R-OH) and Mike Thompson (D-CA) seeks to clarify the law and payments to be made to workers’ comp claimants who are also Medicare eligible.

A legislative solution is necessary to clarify the set-aside process and to provide options for claimants, employers, and workers’ comp plans that are parties to workers’ comp settlements, according to the coalition.

The coalition said the proposal would:

  • Create certainty in determining the amounts to be included in set-asides.
  • Provide an appeals process for parties to CMS determinations.
  • Increase revenue to Medicare through optional direct payment of the total amount of the set-aside to be paid to Medicare.

The proposal will benefit injured workers, employers, insurers, and Medicare, while it creates a system of certainty and allows the settlement process to move forward while eliminating millions of dollars in administrative costs that harm workers, employers, insurers and CMS, according to the coalition.

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Explaining the Prescription Drug Provisions in the Inflation Reduction Act

Juliette Cubanski , Tricia Neuman , and Meredith Freed Published: Jan 24, 2023

The Inflation Reduction Act of 2022 , signed into law by President Biden on August 16, 2022, includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government. This legislation has taken shape amidst strong bipartisan, public support for the government to address high and rising drug prices. CBO estimates that the drug pricing provisions in the law will reduce the federal deficit by $237 billion over 10 years (2022-2031).

The prescription drug provisions included in the Inflation Reduction Act will:

  • Require the federal government to negotiate prices for some drugs covered under Medicare Part B and Part D with the highest total spending, beginning in 2026
  • Require drug companies to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries, beginning in 2023
  • Cap out-of-pocket spending for Medicare Part D enrollees and make other Part D benefit design changes, beginning in 2024
  • Limit monthly cost sharing for insulin to $35 for people with Medicare, beginning in 2023
  • Eliminate cost sharing for adult vaccines covered under Medicare Part D and improve access to adult vaccines in Medicaid and CHIP, beginning in 2023
  • Expand eligibility for full benefits under the Medicare Part D Low-Income Subsidy Program, beginning in 2024
  • Further delay implementation of the Trump Administration’s drug rebate rule, beginning in 2027

This brief summarizes these provisions and discusses the expected effects on people, program spending, and drug prices and innovation.

Require the Federal Government to Negotiate Prices for Some Drugs Covered Under Medicare

Under the Medicare Part D program, which covers retail prescription drugs, Medicare contracts with private plan sponsors to provide a prescription drug benefit. The law that established the Part D benefit included a provision known as the “ noninterference ” clause, which stipulates that the HHS Secretary “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors, and may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.” In addition, the Secretary of HHS does not currently negotiate prices for drugs covered under Medicare Part B (administered by physicians). Instead, Medicare reimburses providers based on a formula set at 106% of the  Average Sales Price (ASP) , which is the average price to all non-federal purchasers in the U.S, inclusive of rebates (other than rebates paid under the Medicaid program).

The Part D non-interference clause has been a longstanding target for some policymakers because it has limited the ability of the federal government to leverage lower prices, particularly for high-priced drugs without competitors. Medicare Part D and Part B drug spending is  highly concentrated among a relatively small share of covered drugs , mainly those without generic or biosimilar competitors. A recent KFF Tracking Poll finds large majorities support allowing the federal government to negotiate drug prices and this support holds steady even after the public is provided with the arguments that were made for and against this proposal.

Provision Description

The Inflation Reduction Act amends the non-interference clause by adding an exception that requires the Secretary of HHS to negotiate prices with drug companies for a small number of single-source brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). Under the new Drug Price Negotiation Program, the number of drugs selected for price negotiation is 10 Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. These drugs will be selected from the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending. The number of drugs with negotiated prices available will accumulate over time.

Certain categories of drugs are excluded from the negotiation process, including:

  • Drugs that have a generic or biosimilar available
  • Drugs that are less than 9 years (for small-molecule drugs) or 13 years (for biological products) from their FDA-approval or licensure date
  • “Small biotech drugs” (until 2029), defined as those which account for 1% or less of Part D or Part B spending and account for 80% or more of spending under each part on that manufacturer’s drugs
  • Drugs with Medicare spending of less than $200 million in 2021 (increased by the CPI-U for subsequent years)
  • Drugs with an orphan designation as their only FDA-approved indication
  • All plasma-derived products

The legislation also delays selection of biologic drugs for negotiation by up to two years if a biosimilar product is likely to enter the market in that time.

The law establishes an upper limit for the negotiated price (the “maximum fair price”) for a given drug. The limit is the lower of the drug’s enrollment-weighted negotiated price (net of all price concessions) for a Part D drug, the average sales price for a Part B drug, or a percentage of a drug’s average non-federal average manufacturer price: 75% for small-molecule drugs and vaccines more than 9 years but less than 12 years beyond approval; 65% for drugs between 12 and 16 years beyond approval or licensure; and 40% for drugs more than 16 years beyond approval or licensure.

When negotiating the “maximum fair price” for a drug, the HHS Secretary is required to consider the following criteria:

  • The manufacturer’s research and development costs, including the extent to which the manufacturer has recouped these costs
  • The current unit costs of production and distribution
  • Federal financial support for novel therapeutic discovery and development related to the drug
  • Data on pending and approved patent applications, exclusivities, and certain other applications and approvals
  • Market data and revenue and sales volume data in the US
  • The extent to which the drug represents a therapeutic advance as compared to existing therapeutic alternatives and the costs of these alternatives
  • Prescribing information for the drug and its therapeutic alternatives
  • Comparative effectiveness of the drug and its therapeutic alternatives, taking into accounts their effects on specific populations, such as individuals with disabilities, the elderly, the terminally ill, children, and other patient populations
  • The extent to which the drug and its therapeutic alternatives address unmet needs for a condition that is not adequately addressed by available therapy.

The law explicitly directs that the HHS Secretary “shall not use evidence from comparative clinical effectiveness research in a manner that treats extending the life of an elderly, disabled, or terminally ill individual as of lower value than extending the life of an individual who is younger, non-disabled, or not terminally ill.”

Part D drugs with negotiated “maximum fair prices” are required to be covered by all Part D plans. Medicare’s payment to providers for Part B drugs with negotiated prices will be 106% of the maximum fair price (rather than the current payment of 106% of the average sales price). (A separate section of the law increases Medicare payments to providers for the administration of biosimilar biologic products to 108% of the average sales price from October 1, 2022 through December 31, 2027.)

An excise tax will be levied on drug companies that do not comply with the negotiation process. The excise tax starts at 65% of a product’s sales in the U.S. and increases by 10% every quarter to a maximum of 95%. As an alternative to paying the tax, manufacturers can choose to withdraw all of their drugs from coverage under Medicare and Medicaid. In addition, manufacturers that refuse to offer an agreed-upon negotiated price for a selected drug to “a maximum fair price eligible individual” (i.e., Medicare beneficiaries enrolled in Part B and/or Part D) or to a provider of services to maximum fair price eligible individuals (such as a physician or hospital) will pay a civil monetary penalty equal to 10 times the difference between the price charged and the maximum fair price.

The timeline for the negotiation process spans roughly two years, although the timeline is modified for 2026, the first year that negotiated prices will be available under this new program (Figure 1). For the 10 Part D drugs with negotiated prices taking effect on January 1, 2026, the list of 10 Part D drugs selected for negotiation will be published on September 1, 2023, based on spending data for the 12-month period from June 1, 2022 to May 31, 2023. The period of negotiation between the Secretary and manufacturers of these drugs will occur between October 1, 2023 and August 1, 2024, and the negotiated “maximum fair prices” will be published no later than September 1, 2024. For 2027, which is an example of timing for a typical year in terms of the timeline for establishing negotiated prices, the list of 15 Part D drugs selected for negotiation will be published on February 1, 2025. The period of negotiation between the Secretary and manufacturers of the selected drugs will occur between February 28, 2025 and November 1, 2025 and the negotiated “maximum fair prices” will be published no later than November 30, 2025. For Part B drugs, the initial period of drug price negotiation between the Secretary and manufacturers of selected drugs will take place between February 28, 2026 and November 1, 2026, with negotiated prices first available in 2028.

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Figure 1: Medicare Drug Price Negotiation Timeline for 2026 & 2027

The legislation appropriates funding of $3 billion in fiscal year 2022 for implementing the drug price negotiation provisions over the 2023-2031 period.

Effective Date

Negotiated prices for the first set of selected drugs covered under Part D will be available in 2026. For drugs covered under Part B, the first year negotiated prices will be available is 2028.

People affected

The provision to allow the Secretary to negotiate drug prices will put downward pressure on both Part D premiums and out-of-pocket drug costs, although the number of Medicare beneficiaries who will see lower out-of-pocket drug costs in any given year under the drug price negotiation program and the magnitude of savings will depend on how many and which drugs are subject to the negotiation process and the price reductions achieved through the negotiations process relative to what prices would otherwise be.

budgetary impact

CBO estimates $98.5 billion in Medicare savings over 10 years (2022-2031) from the drug negotiation provisions in the Inflation Reduction Act.

Effects on the Development of New Drugs

CBO estimates that the drug pricing provisions in the Inflation Reduction Act, including but not limited to the new Medicare drug price negotiation program, will have a very modest impact on the number of new drugs coming to market in the U.S. over the next 30 years: 13 fewer out of 1,300, or a reduction of 1% (about 1 fewer drug over the 2023-2032 period, about 5 fewer drugs in the subsequent decade, and about 7 fewer drugs in the decade after that).

Require Drug Manufacturers to Pay Rebates for Price Increases Above Inflation for Drugs Used by People with Medicare

To date, Medicare has had no authority to limit annual price increases for drugs covered under Part B or Part D. In contrast, Medicaid has a rebate system that requires drug manufacturers to provide refunds if prices grow faster than inflation. Year-to-year drug price increases exceeding inflation are not uncommon and affect people with both Medicare and private insurance. Our analysis shows that half of all drugs covered by Medicare had list price increases that exceeded the rate of inflation between 2019 and 2020. A separate analysis by the HHS Office of Inspector General showed average sales price (ASP) increases exceeding inflation for 50 of 64 studied Part B drugs in 2015.

provision description

The Inflation Reduction Act requires drug manufacturers to pay a rebate to the federal government if prices for single-source drugs and biologicals covered under Medicare Part B and nearly all covered drugs under Part D increase faster than the rate of inflation (CPI-U). Price changes will be measured based on the average sales price for Part B drugs and the average manufacturer price for Part D drugs. If price increases are higher than inflation, manufacturers will be required to pay the difference in the form of a rebate to Medicare. The rebate amount is equal to the total number of units sold in Medicare multiplied by the amount, if any, by which a drug’s price in a given year exceeds the inflation-adjusted price. For Part B drugs with price increases greater than inflation, beneficiary coinsurance will be based on 20% of the drug’s lower inflation-adjusted price. The base year for measuring cumulative price changes relative to inflation is 2021.

Rebate dollars would be deposited in the Medicare Supplementary Medical Insurance (SMI) trust fund. Manufacturers that do not pay the required rebate amount will face a penalty equal to at least 125% of the original rebate amount.

The legislation appropriates 10-year (2022-2031) funding of $160 million to the Centers for Medicare & Medicaid Services (CMS) for implementing the inflation rebate provisions ($80 million for Part B and $80 million for Part D).

The Part D inflation rebate provision takes effect in 2022, the starting point for measuring drug price increases, with rebate payments required beginning in 2023. The Part B inflation rebate provision takes effect in 2023.

These provisions are expected to limit out-of-pocket drug spending growth for people with Medicare and put downward pressure on premiums by discouraging drug companies from increasing prices faster than inflation. The number of Medicare beneficiaries who will see lower out-of-pocket drug costs in any given year resulting from these provisions will depend on how many and which drugs have lower price increases and the magnitude of price reductions relative to what prices would otherwise be.

CBO estimates a net federal deficit reduction of $63.2 billion over 10 years (2022-2031) from the drug inflation rebate provisions in the Inflation Reduction Act. This includes net savings of $56.3 billion ($71.8 billion in savings to Medicare and $0.3 billion in savings for other federal programs, such as DoD, FEHB, and subsides for ACA Marketplace coverage, offset by $15.7 billion in additional Medicaid spending) and higher federal revenues of $6.9 billion.

Effects on Launch Pricing

Drug manufacturers may respond to the inflation rebates by increasing launch prices for drugs that come to market in the future. CBO projects that higher launch prices would primarily affect Medicaid spending. This is because, although the basic Medicaid drug rebate would be larger (since it is calculated as a percentage of the average manufacturer price), the higher Medicaid drug rebates would not offset higher launch prices. According to CBO, Medicare Part D plan sponsors and private insurers would be less affected than Medicaid by higher launch prices because they would still be able to negotiate rebates with drug companies and potentially refuse to cover drugs with very high launch prices. However, they may have less leverage in some instances, such as when there are no therapeutic alternatives available or when drugs are covered under a Part D “protected class”. In addition, if launch prices rise for Part B drugs, the HHS Secretary would have no authority to negotiate lower prices unless and until the new drug meets the criteria for selection for drug price negotiation under the negotiation process described above.

Cap Out-of-Pocket Spending for Medicare Part D Enrollees and Other Part D Benefit Design Changes

Medicare Part D currently provides catastrophic coverage for high out-of-pocket drug costs, but there is no limit on the total amount that beneficiaries pay out of pocket each year. Under the current benefit design, Part D enrollees qualify for catastrophic coverage when the amount that they pay out of pocket plus the value of the manufacturer discount on the price of brand-name drugs in the coverage gap phase exceeds a certain threshold amount. Enrollees with drug costs high enough to exceed the catastrophic threshold are required to pay 5% of their total drug costs above the threshold until the end of the year unless they qualify for Part D Low-Income Subsidies (LIS). In 2022, the catastrophic threshold is set at $7,050, and beneficiaries pay about $3,000 out of pocket for brand-name drugs before reaching the catastrophic coverage phase.

Medicare pays 80% of total costs above the catastrophic threshold (known as “reinsurance”) and plans pay 15%. Medicare’s reinsurance payments to Part D plans now account for close to half of total Part D spending (47%), up from 14% in 2006 (increasing from $6 billion in 2006 to  $52 billion in 2021 ).

Under the current structure of Part D, there are multiple phases, including a deductible, an initial coverage phase, a coverage gap phase, and the catastrophic phase. During the coverage gap benefit phase, enrollees pay 25% of drug costs for both brand-name and generic drugs; plan sponsors pay 5% for brands and 75% for generics; and drug manufacturers provide a 70% price discount on brands (there is no discount on generics). Under the current benefit design, beneficiaries can face different cost-sharing amounts for the same medication depending on which phase of the benefit they are in, and can face significant out-of-pocket costs for high-priced drugs because of coinsurance requirements and no hard out-of-pocket cap.

The Inflation Reduction Act amends the design of the Part D benefit. For 2024, the law eliminates the 5% beneficiary coinsurance requirement above the catastrophic coverage threshold, effectively capping out-of-pocket costs at approximately $3,250 that year. Beginning in 2025, the legislation adds a hard cap on out-of-pocket spending of $2,000, indexed in future years to the rate of increase in per capita Part D costs (Figure 2).

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Figure 2: Changes to Medicare Part D for Brand-Name Drug Costs

The law also modifies liability for Medicare Part D plans and drug manufacturers, starting in 2025, and reduces Medicare’s liability for spending above the out-of-pocket cap. Medicare’s share of total costs above the spending cap (“reinsurance”) will decrease from 80% to 20% for brand-name drugs and to 40% for generic drugs. Medicare Part D plans’ share of costs will increase from 15% to 60% for both brands and generics above the cap, and drug manufacturers will be required to provide a 20% price discount on brand-name drugs. The legislation also requires manufacturers to provide a 10% discount on brand-name drugs between the deductible and the annual out-of-pocket spending cap, replacing the 70% price discount in the coverage gap phase under the current benefit design.

The law also provides for an adjustment to the calculation of the base beneficiary premium for 2024 through 2029, limiting premium increases to no more than 6% from the prior year. For 2030, the bill includes a provision to lower the beneficiary share of the cost of standard drug coverage (currently set at 25.5%) to ensure that the premium does not increase by more than 6% from 2029. The legislation also allows Part D enrollees the option of spreading out their out-of-pocket costs over the year rather than face high out-of-pocket costs in any given month.

The Part D benefit redesign provisions take effect beginning in 2024, with the elimination of the 5% coinsurance for catastrophic coverage and the first year of the Part D premium adjustment. Other changes take effect in 2025, including the $2,000 cap on out-of-pocket drug spending, spreading out of costs, and changes to liability for total costs above the spending cap.

people affected

Medicare beneficiaries in Part D plans with relatively high out-of-pocket drug costs are likely to see substantial out-of-pocket cost savings from these changes. This includes Medicare beneficiaries with spending above the catastrophic threshold due to just one very high-priced specialty drug for medical conditions such as cancer, hepatitis C, or multiple sclerosis and beneficiaries who take a handful of relatively costly brand or specialty medications to manage their medical conditions.

Based on our analysis , 1.4 million Part D enrollees incurred annual out-of-pocket costs for their medications above $2,000 in 2020, averaging $3,355 per person. This estimate includes 1.3 million enrollees who had spending above the catastrophic coverage threshold (which equaled roughly $2,700 in out-of-pocket costs that year for brand-name drugs alone). These estimates are a conservative measure of how many beneficiaries will be helped by capping out-of-pocket drug spending under Medicare Part D starting in 2024 because they do not account for expected increases in annual out-of-pocket drug spending between 2020 and 2024/2025, the increase in the number of beneficiaries on Medicare, or higher utilization and spending associated with the increased affordability of prescription drugs due to this benefit improvement.

Based on their average out-of-pocket spending, these 1.4 million Part D enrollees would have saved $1,355, or 40% of their annual out-of-pocket costs, on average, if a $2,000 cap had been in place in 2020. Part D enrollees with higher-than-average out-of-pocket costs will save substantial amounts with a $2,000 out-of-pocket spending cap. For example, the top 10% of beneficiaries (145,000 enrollees) with average out-of-pocket costs for their medications above $2,000 in 2020 – who spent at least $5,567 – would have saved $3,567 (64%) in out-of-pocket costs with a $2,000 cap.

Capping out-of-pocket drug spending under Medicare Part D will be especially helpful for beneficiaries who take high-priced drugs for conditions such as cancer or multiple sclerosis. For example, in 2020, among Part D enrollees without low-income subsidies, average annual out-of-pocket spending for the cancer drug Revlimid was $6,200 (used by 33,000 beneficiaries); $5,700 for the cancer drug Imbruvica (used by 21,000 beneficiaries); and $4,100 for the MS drug Avonex (used by 2,000 beneficiaries).

With the new hard cap on out-of-pocket spending, it is possible that enrollees could face higher Part D premiums resulting from higher plan liability for drug costs above the spending cap, though these premium increases could be mitigated by the provisions to stabilize premiums between 2024 and 2030. Plans will likely face financial incentives to exercise greater control of costs below the new spending cap, such as through more utilization management or increased generic drug utilization, which could help to limit potential premium increases.

CBO estimates these provisions will increase federal spending by $30 billion over 10 years (2022-2031), which consists of $29.9 billion in higher spending associated with Part D benefit redesign and $0.1 billion in higher spending associated with the provision to spread out out-of-pocket costs.

Limit Cost Sharing for Insulin for People with Medicare

For Medicare beneficiaries with diabetes who use insulin, coverage is provided under Medicare Part D, the outpatient prescription drug benefit, and may also be covered under Part B when used with an external insulin pump. Because Part D plans vary in terms of the insulin products they cover and costs per prescription, what enrollees pay for insulin products also varies. Beneficiary coinsurance under Medicare Part B is 20% of the Medicare-approved amount.

Currently, Medicare beneficiaries can choose to enroll in a Part D plan participating in an  Innovation Center model  in which enhanced drug plans cover insulin products at a monthly copayment of $35 in the deductible, initial coverage, and coverage gap phases of the Part D benefit. Participating plans do not have to cover all insulin products at the $35 monthly copayment amount, just one of each dosage form (vial, pen) and insulin type (rapid-acting, short-acting, intermediate-acting, and long-acting). In 2022, a total of 2,159 Part D plans are participating in this model , or roughly one third of all Part D plans. Nearly half (45%) of non-LIS enrollees are in PDPs participating in the insulin model in 2022, based on August 2021 enrollment. The model was launched in response to rising prices for insulin, which have attracted increasing scrutiny from policymakers, leading to  congressional   investigations  and overall concerns about affordability and access for people with diabetes who need insulin to control blood glucose levels.

The Inflation Reduction Act limits monthly cost sharing for insulin products to no more than $35 for Medicare beneficiaries, including insulin covered under both Part D and Part B, and no deductible will apply. All Medicare Part D plans, both stand-alone drug plans and Medicare Advantage drug plans, will be required to charge no more than $35 for whichever insulin products they cover, although plans will not be required to cover all insulin products. For 2026 and beyond, the law limits monthly Part D copayments for insulin to the lesser of $35, 25% of the maximum fair price (in cases where the insulin product has been selected for negotiation), or 25% of the negotiated price in Part D plans.

The monthly cap on insulin cost sharing in Medicare takes effect January 1, 2023 for insulin covered under Part D and July 1, 2023 for insulin covered under Part B.

A $35 cap on monthly cost sharing for insulin products is expected to lower out-of-pocket costs for insulin users in Medicare Part D without low-income subsidies. In 2020, 3.3 million Medicare Part D enrollees used insulin. Among Medicare Part D insulin users who do not receive low-income subsidies, average out-of-pocket costs per prescription across all insulin products was $54 in 2020 – over 50% more than the $35 monthly copay cap for insulin that will begin in 2023.

According to our analysis of 2019 Part D formularies, a large number of Part D plans placed insulin products on Tier 3, the preferred drug tier, which typically had a $47 copayment per prescription during the initial coverage phase. However, once enrollees reached the coverage gap phase, they faced a 25% coinsurance rate, which equates to $100 or more per prescription in out-of-pocket costs for many insulin therapies, unless they qualified for low-income subsidies. Paying a flat $35 copayment rather than 25% coinsurance or a higher copayment amount could reduce out-of-pocket costs for many insulin products.

CBO estimates additional federal spending of $5.1 billion ($4.8 billion for Medicare Part D and $0.3 billion for Medicare Part B) over 10 years (2022-2031) associated with the insulin cost-sharing limits in the Inflation Reduction Act.

Eliminate Cost Sharing for Adult Vaccines Covered Under Part D and Improve Access to Adult Vaccines in Medicaid and CHIP

Medicare covers vaccines under both Part B and Part D . This separation of coverage for vaccines under Medicare is because there were statutory requirements for coverage of a small number of vaccines under Part B before the 2006 start of the Part D benefit. Vaccines for COVID-19, influenza, pneumococcal disease, and hepatitis B (for patients at high or intermediate risk), and vaccines needed to treat an injury or exposure to disease are covered under Part B. All other commercially available vaccines needed to prevent illness are covered under Medicare Part D.

For the influenza, pneumococcal pneumonia, hepatitis B, and COVID-19 vaccines covered under Medicare Part B, patients currently face no cost sharing for either the vaccine itself or its administration. For other Part B vaccines, such as those needed to treat an injury or exposure to a disease such as rabies or tetanus, Medicare covers 80% of the cost, and beneficiaries are responsible for the remaining 20%. Unlike most vaccines covered under Part B, vaccines covered under Part D can be subject to cost sharing, because Part D plans have flexibility to determine how much enrollees will be required to pay for any given on-formulary drug, including vaccines. (Part D enrollees who receive low-income subsidies (LIS) generally pay relatively low amounts for vaccines and other covered drugs.) Under Part D, cost sharing can take the form of flat dollar copayments or coinsurance (i.e., a percentage of list price).

With regard to Medicaid and CHIP, coverage of adult vaccines is optional and varies by state. According to a recent survey , half of states (25) did not cover all vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) in 2018–2019, and 15 of 44 states responding to the survey imposed cost sharing requirements on adult vaccines.

The Inflation Reduction Act requires that adult vaccines covered under Medicare Part D that are recommended by the Advisory Committee on Immunization Practices (ACIP), such as for shingles, be covered at no cost. This makes coverage of vaccines under Medicare Part D consistent with coverage of vaccines under Medicare Part B, such as the flu and COVID-19 vaccines. The law also requires state Medicaid and CHIP programs to cover all approved adult vaccines recommended by ACIP and vaccine administration, without cost sharing.

These provisions take effect in 2023.

Eliminating cost-sharing for adult vaccines covered under Medicare Part D could help with vaccine uptake among older adults and will lower out-of-pocket costs for those who need Part D-covered vaccines. Our analysis shows that in 2020, 4.1 million Medicare beneficiaries received a Part D-covered vaccine, including 3.6 million who received the vaccine to prevent shingles, and aggregate out-of-pocket spending on Part D vaccines was $0.3 billion. In 2018, Part D enrollees without low-income subsidies paid an average of $57 out of pocket for each dose of the shingles shot, which is generally free to most other people with private coverage.

Requiring state Medicaid and CHIP programs to cover all adult vaccines recommended by ACIP without cost sharing is expected to increase access to some adult vaccines under Medicaid. Using a recent survey’s state level data and 2019 adult Medicaid enrollment data, a separate KFF analysis estimates about 4 million adults could gain coverage of at least one or more vaccines.

CBO estimates that these provisions will increase federal spending by $7 billion over 10 years (2022-2031), including $4.4 billion for Medicare and $2.5 billion for Medicaid and CHIP.

Expand Eligibility for Part D Low-Income Subsidies

The Part D Low-Income Subsidy (LIS) Program helps beneficiaries with their Part D premiums, deductibles, and cost sharing, providing varying levels of assistance to beneficiaries at different income and asset levels up to 150% of poverty. Based on data from CMS , in 2020, 13.1 million Medicare beneficiaries received either full or partial LIS benefits, representing 28% of all Part D enrollees that year.

Medicare beneficiaries who are also enrolled in Medicaid, who generally have incomes up to 135% of poverty, automatically receive full LIS benefits. Individuals who do not automatically qualify for LIS can enroll if they meet certain income and asset requirements set by the federal government and can receive full or partial LIS benefits depending on their income and assets. Beneficiaries qualify for full LIS benefits if they have income up to 135% of poverty and resources up to $9,900 individual, $15,600 couple in 2022 (including a $1,500 per person allowance for funeral/burial expenses). Beneficiaries qualify for partial LIS benefits if they have income between 135-150% of poverty and resources up to $15,510 individual, $30,950 couple in 2022.

Beneficiaries who receive full LIS benefits pay no Part D premium or deductible and only modest copayments for prescription drugs until they reach the catastrophic threshold, at which point they face no additional cost sharing. Some beneficiaries who receive partial LIS benefits pay no monthly premium while others pay a partial monthly Part D premium (with subsidies of 75%, 50%, or 25% of the monthly premium, depending on their income); all partial LIS recipients also pay an $89 annual deductible (in 2022), 15% coinsurance up to the out-of-pocket threshold, and modest copayments for drugs above the catastrophic threshold.

The Inflation Reduction Act makes individuals with incomes up to 150% of poverty and resources at or below the limits for partial LIS benefits eligible for full benefits under the Part D Low-Income Subsidy Program. The law eliminates the partial LIS benefit currently in place for individuals with incomes between 135% and 150% of poverty.

Expansion of eligibility for full Part D LIS benefits takes effect in 2024.

Providing full Medicare Part D LIS benefits to Part D enrollees with incomes up to 150% of poverty could help an estimated 0.4 million beneficiaries , based on the number of beneficiaries receiving partial LIS benefits in 2020. Annual out-of-pocket drug costs for these beneficiaries could fall by close to $300, on average, based on the difference between average out-of-pocket drug costs for LIS enrollees receiving full benefits versus partial benefits in 2020 – plus additional savings associated with more generous premium subsidies.

These averages understate the potential cost savings for the smaller share of low-income enrollees with extraordinarily high drug costs, such as partial LIS beneficiaries who take high-cost specialty drugs. This is because for high-cost drugs, with total prices in the thousands of dollars, 15% coinsurance can translate into substantial out-of-pocket costs. For example, partial LIS enrollees taking Humira or Enbrel for rheumatoid arthritis would pay around $1,900 for a year’s worth of these medications in 2022, while full LIS enrollees would pay less than $20 annually. Thus, savings for partial LIS enrollees would be roughly $1,900 on cost sharing for one of these medications alone. Annual savings would be similar for other high-cost specialty drugs, with the majority of savings occurring below the catastrophic threshold where partial LIS enrollees currently pay 15% coinsurance but full LIS enrollees pay low flat copays for brand-name drugs of either $3.95 or $9.85, depending on their income and asset levels.

CBO estimates that this provision will increase federal spending by $2.2 billion over 10 years (2022-2031).

Further Delay Implementation of the Trump Administration’s Drug Rebate Rule

The Inflation Reduction Act further delays implementation of the November 2020 final rule issued by the Trump Administration that would have eliminated rebates negotiated between drug manufacturers and pharmacy benefit managers (PBMs) or health plan sponsors in Medicare Part D by removing the safe harbor protection currently extended to these rebate arrangements under the federal anti-kickback statute. This rule was slated to take effect on January 1, 2022, but the Biden Administration delayed implementation to 2023 , the Infrastructure Investment and Jobs Act signed into law on November 15, 2021 delayed implementation to 2026, and the Bipartisan Safer Communities Act signed into law on June 25, 2022 included a further delay to 2027.

This provision takes effect in 2027, delaying implementation of the rebate rule until 2032.

Since the rebate rule never took effect, delaying it is not expected to have a material impact on Medicare beneficiaries. Had the rule taken effect, it was expected to increase premiums for Medicare Part D enrollees, according to both CBO and the HHS Office of the Actuary (OACT). OACT estimated that a small group of beneficiaries who use drugs with significant manufacturer rebates could have seen a substantial decline in their overall out-of-pocket spending under the rule, assuming manufacturers passed on price discounts at the point of sale, but other beneficiaries would have faced out-of-pocket cost increases.

Because the rebate rule was finalized (although not implemented), its cost has been incorporated in CBO’s baseline for federal spending. Therefore, delaying implementation of the rebate rule is expected to generate savings. CBO estimates savings of $122.2 billion from delaying implementation of the Trump Administration’s rebate rule between 2027 (when the Inflation Reduction Act delay takes effect) and 2032. In addition, CBO estimated savings of $50.8 billion between 2023 and 2026 for the three-year delay of this rule included in the Infrastructure Investment and Jobs Act and savings of $20.9 billion in 2026 and 2027 for the one-year delay included in the Bipartisan Safer Communities Act. This is because both CBO  and  Medicare’s actuaries  estimated substantially higher Medicare spending over 10 years as a result of banning drug rebates under the Trump Administration’s rule – up to $170 billion higher, according to CBO, and up to $196 billion higher, according to the HHS Office of the Actuary (OACT).

  • Prescription Drugs
  • Medicare Part D
  • Cost Sharing

Also of Interest

  • FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program
  • What Are the Prescription Drug Provisions in the Inflation Reduction Act?
  • How Will the Prescription Drug Provisions in the Inflation Reduction Act Affect Medicare Beneficiaries?
  • August 11 Web Event: Understanding the Health Care Provisions in the Inflation Reduction Act
  • Medicaid and the Inflation Reduction Act of 2022
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Here's how to reduce your health-care costs during Medicare Advantage open enrollment

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  • If you're on a Medicare Advantage plan, you have until March 31 to reconsider your coverage.
  • Here's what you need to know to get started.

Certain retirees can now change their health coverage during Medicare Advantage open enrollment , which runs until March 31.

Medicare Advantage is health coverage provided through private companies that are paid by Medicare to cover your benefits.

If you're already on a Medicare Advantage plan , you can take advantage of the open enrollment period to switch to another Medicare Advantage plan or drop your Medicare Advantage plan and switch to original Medicare and perhaps also a separate Medicare drug plan. (Original Medicare includes Parts A and B for inpatient hospital stays and outpatient care.)

More from Personal Finance: How one beach city is helping residents age in place What happens to your Social Security benefits when you die 62% of adults 50 and over have not used professional help for retirement

One of the biggest reasons Medicare beneficiaries may want to switch coverage is costs.

Recent research from the Employee Benefit Research Institute suggests that retirees may need to have substantial sums set aside to cover health care costs in retirement — up to $413,000 in one "extreme case" for a couple covered by Medigap with high prescription drug expenditures to cover 90% of their costs.

However, those enrolled in Medicare Advantage may need lower savings targets, the research found. For example, couples may need to have just $189,000 saved to have a 90% chance of covering their retirement health care costs.

There are potential drawbacks to Medicare Advantage, the research notes, particularly because those plans tend to have limited networks or require approval before covering certain medications or services.

While those six-figure estimates may sound intimidating, a better way to plan for health care costs in retirement is as an annual cash flow need, rather than lump sum savings, according to physician and certified financial planner Carolyn McClanahan, the founder of Life Planning Partners in Jacksonville, Florida.

"We need to look at this year to year instead of trying to predict 30 years of costs," said McClanahan, who is also a member of the CNBC FA Council .

Medicare open enrollment periods can be an opportunity to identify potential ways to save.

When a Medicare Advantage plan may be best

Medicare Advantage plans have largely been put in place because of baby boomers, who have become used to managed care plans in their working years, notes Darren Hotton, associate director of community health and benefits at the National Council on Aging.

The plans allow beneficiaries to carry just one card and usually come with co-pays. Medicare Advantage plans generally don't require beneficiaries to get a separate drug plan for prescriptions and may also provide for supplemental benefits that are not allowed under original Medicare.

"It's great for people who are healthy," Hotton said. "It's great for people who love co-pays and being told where to go."

Because Medicare Advantage plans come with an out-of-pocket maximum, they also are typically a fit for low-income beneficiaries who may struggle with high deductibles and coinsurance under original Medicare, he noted.  

Navigating Medical Bills: Steps to manage costs and minimize debt

When to keep your options open   

Whether or not a Medicare Advantage plan is right for you depends on how healthy you are.

"If you know that you have a lot of medical services, it's probably best for you to just go to Medicare and a Medicare supplement," Hotton said. "But if you're healthy, you could save money, then this is probably the right option with Medicare Advantage."

Retirees may be tempted to go with Medicare Advantage once they see the lower premiums, particularly if they live in an area with a strong network, McClanahan said.

But the problem is those plans can be restrictive if you come down with a serious condition and need specialized care.

If you want to switch to Medigap — extra insurance provided by a private insurance company to supplement original Medicare costs — you would have to undergo specialized underwriting. If you're sick, you would be unlikely to pass and stuck with the more limited Medicare Advantage coverage, McClanahan said.

"If you're young and healthy, you don't know what disease you're going to get," McClanahan said. Consequently, she said she often recommends original Medicare coverage.

Hotton said he has seen beneficiaries who go back and forth between Advantage and original Medicare many times in their lifetime. The key is to be strategic. For example, someone who has a family history of health declines after 80 may elect to switch back to original Medicare when they approach that age milestone.

How to take advantage of open enrollment

If you're currently on a Medicare Advantage plan and are considering whether to switch during open enrollment, the first step is to visit your local State Health Insurance Assistance Program , or SHIP, Hotton said.

There, they can walk you through the Medicare plan finder, whether you can see how your current plan compares with others with regard to providers, prescriptions and pharmacies.

If there's a better plan, the help at your SHIP office may be able to help with that transition, Hotton said.

Alternatively, beneficiaries may also compare plans by visiting Medicare.gov .

Beneficiaries may also receive help by calling Medicare's 800 number . However, they may only send you a more limited list of the top three Medicare Advantage plans in your area, Hotton noted.

Because it can take some time to become fully enrolled in new coverage if you switch, it's best to get started now rather than wait until the March 31 deadline, Hotton said.

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U.S. Dept. of Health & Human Services

CMS Contacts

Guidance for contact information for Benefits Coordination and Recovery Center (BCRC).

Issued by: Centers for Medicare & Medicaid Services (CMS)

Issue Date: June 30, 2020

Note: Submit all payments, forms, documents and/or correspondence to the return mailing address indicated on recovery correspondence you have received. Otherwise, refer to the contact information provided on this page.

Important Note: Be aware that the CMS recovery portals are also available to easily manage cases, upload documentation, make electronic payments and opt in to go paperless.

For Non-Group Health Plan (NGHP) Recovery: Medicare Secondary Payer Recovery Portal (MSPRP)

https://www.cob.cms.hhs.gov/MSPRP/ (Beneficiaries will access via Medicare.gov )

For Group Health Plan (GHP) Recovery: Commercial Repayment Center Portal (CRCP)

https://www.cob.cms.hhs.gov/CRCP/

To electronically submit and track submission and status for Workers’ Compensation Medicare Set-Aside Arrangements (WCMSAs) use the Workers Compensation Medicare Set-Aside Portal (WCMSAP)

https://www.cob.cms.hhs.gov/WCMSA/login (Beneficiaries will access via Medicare.gov )

Benefits Coordination & Recovery Center (BCRC)

BCRC Customer Service Representatives are available to assist you Monday through Friday, from 8:00 a.m. to 8:00 p.m., Eastern Time, except holidays, at toll-free lines: 1-855-798-2627 (TTY/TDD: 1-855-797-2627 for the hearing and speech impaired).

Note: For information on how the BCRC can assist you, please see the Coordination of Benefits page and the Non-Group Health Plan Recovery page.

Commercial Repayment Center (CRC)

CRC Customer Service Representatives are available to assist you Monday through Friday, from 8:00 a.m. to 8:00 p.m., Eastern Time, except holidays, at toll-free lines: 1-855-798-2627 (TTY/TDD: 1-855-797-2627 for the hearing and speech impaired).

Note: For information on how the CRC can assist you with Group Health Plan Recovery, please see the Group Health Plan Recovery page. Effective October 5, 2015, CMS transitioned a portion of Non-Group Health Plan recovery workload from the BCRC to the CRC. Please see the Non-Group Health Plan Recovery page for more information.

HHS is committed to making its websites and documents accessible to the widest possible audience, including individuals with disabilities. We are in the process of retroactively making some documents accessible. If you need assistance accessing an accessible version of this document, please reach out to the [email protected] .

DISCLAIMER: The contents of this database lack the force and effect of law, except as authorized by law (including Medicare Advantage Rate Announcements and Advance Notices) or as specifically incorporated into a contract. The Department may not cite, use, or rely on any guidance that is not posted on the guidance repository, except to establish historical facts.

COMMENTS

  1. Coordination of Benefits & Recovery Overview

    Coordination of Benefits & Recovery Overview Additional Web pages available under the Coordination of Benefits & Recovery section of CMS.gov can be found in the Related Links section below.

  2. Medicare's Recovery Process

    The process of recovering conditional payments from the Medicare beneficiary typically, involves the following steps: 1. Reporting the case to the BCRC: Whenever there is a pending liability, no-fault, or workers' compensation case, it must be reported to the BCRC.

  3. PDF Coordination of Benefits.

    Let the Benefits Coordination & Recovery Center know: Your name Your health or drug plan's name and address Your health or drug plan's policy number The date coverage was added, changed, or stopped, and why Also, tell your doctor and other health care providers about your health or drug coverage changes the next time you get care.

  4. PDF Your guide to who pays first.

    the Benefits Coordination & Recovery Center toll-free at 1-855-798-2627 TTY users can call 1-855-797-2627 The Benefits Coordination & Recovery Center is the contractor that acts on behalf of Medicare to: • Collect and manage information on other types of insurance or coverage that a person with Medicare may have

  5. Coordination of Benefits and Recovery Overview

    Coordination of Benefits and Recovery Overview Guidance for Coordination of Benefits (COB) process that allows for plans that provide health and/or prescription coverage for a person with Medicare to determine their respective payment responsibilities. Issued by: Centers for Medicare & Medicaid Services (CMS) June 30, 2020

  6. CMS Coordination of Benefits & Recovery Overview

    CMS Coordination of Benefits & Recovery Overview Guidance for overview of CMS Coordination of Benefits and Recovery program. Issued by: Centers for Medicare & Medicaid Services (CMS) Issue Date: June 30, 2020

  7. Coordination of Benefits & Recovery Overview What's New Archive

    April 20, 2021 - CMS to Host Benefits Coordination & Recovery Center (BCRC) and Commercial Repayment Center (CRC) Group Health Plan (GHP) Town Hall CMS will be hosting a BCRC and CRC GHP Town Hall on May 19, 2021. Complete information is available in the announcement in the Downloads section below.

  8. PDF FAQs: Coordination of Benefits with Medicare

    1. Coordination of Benefits What does "coordination of benefits" mean? Coordination of benefits is a process for determining which plan or insurance policy will pay first if 2 or more health plans or insurance policies cover the same benefits. When one of the plans is a Medicare health plan, federal law decides who pays first.

  9. Coordination of Benefits and Recovery What's New

    Coordination of Benefits and Recovery What's New Guidance for new information regarding upcoming Coordination of Benefits and Recovery activities are posted as the information becomes available. Issued by: Centers for Medicare & Medicaid Services (CMS) Issue Date: September 16, 2020

  10. PDF Coordination of Benefits Agreement (COBA)

    The Coordination of Benefits Agreement (COBA) National Council for Prescription Drug Programs (NCPDP) Batch Version D.0 COB/Crossover Claims provides COBA trading partners information for preparing and testing Medicare NCPDP D.0 batch COB transactions with the Benefits Coordination & Recovery Center (BCRC). This guide includes six sections.

  11. How To Fix Medicare Coordination Of Benefits Issues

    If this happens, contact the Medicare Benefits Coordination & Recovery Center at 855-798-2627. Explain to the representative that your claims are being denied, because Medicare thinks another plan is primary to your Medicare Advantage plan. The representative will ask you a series of questions to get the information updated in their systems.

  12. COB (Coordination of benefits)

    Coordination of Benefits & Recovery (COBR) overview. The Centers for Medicare & Medicaid Services (CMS) is restructuring its coordination of benefits and Medicare secondary payer recovery webpages. Visit this overview page, then select from the links at left and under the Related Links section.

  13. Benefits Coordination & Recovery Center (BCRC), formerly ...

    The Benefits Coordination & Recovery Center (BCRC) consolidates the activities that support the collection, management, and reporting of other insurance coverage for Medicare beneficiaries. The purpose of the COB program is to identify the health benefits available to a Medicare beneficiary and to coordinate the payment process to prevent ...

  14. Guide to Medicare Coverage and Enrollment for Veterans

    Coordination of benefits. If you're a Veteran, you can get comprehensive coverage by combining both Medicare and VA healthcare benefits, plus TRICARE if you're eligible.

  15. PDF NGHP Quick Reference Guide v1.5 Apr 2018

    To manage the huge volume of MMSEA Section 111 data and other Coordination of Benefits (COB) work that Medicare handles, CMS has engaged the Benefits Coordination & Recovery Center (BCRC) to manage the technical aspects of the Section 111 data exchange process for all Section 111 RREs. The RREs (or their data management agents) transmit information

  16. Login Page

    The collection of this information is authorized by Section 1862 (b) of the Social Security Act (codified at 42 U.S.C 1395y (b)) (see also 42, C.F.R. 411.24). The information collected will be used to identify and recover past conditional and mistaken Medicare primary payments and to prevent Medicare from making mistaken payments in the future ...

  17. Coordination of Benefits & Third Party Liability

    Coordination of Benefits & Third Party Liability Centers for Medicare & Medicaid Services A federal government managed website by the Centers for Medicare & Medicaid Services. 7500 Security Boulevard Baltimore, MD 21244 It is possible for Medicaid beneficiaries to have one or more additional sources of coverage for health care services.

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