Why Medicare just sent insurers $16 billion in drug plan payments

Bob Herman covers health insurance, government programs, hospitals, physicians, and other providers — reporting on how money influences those businesses and shapes what we all pay for care. He is also the author of the Health Care Inc. newsletter. You can reach Bob on Signal at bobjherman.09.

The federal government has sent a record $16 billion to health insurers that sell Medicare drug plans, a flashing red sign that prescription drug spending is blowing up far beyond what government officials and insurance experts had expected.

The good news for Medicare patients: They are shielded from higher drug costs because the Inflation Reduction Act has limited their out-of-pocket spending. Concerns arise, however, for the broader public: Pharmaceutical companies get bigger sales as more people fill their medications, and insurers remain protected from sizable losses — while taxpayers are left holding the bag.

Every year, Medicare looks at drug spending data and calculates whether the insurers’ drug plans, known as Part D plans, spent more or less than what they had projected at the start of the year. If insurers’ costs were more than expected, the government gives them an infusion to help subsidize the losses, known as reconciliation payments.