Two-and-a-half years after President Joe Biden signed the Inflation Reduction Act into law, Medicare Part D beneficiaries will soon see an annual cap on medication costs.
Effective Jan. 1, Medicare Part D will begin limiting out-of-pocket prescription drug costs to $2,000. This ceiling will be adjusted for inflation each year.
Seven key details to know:
1. The law, which passed in August 2022, is a $739 billion reconciliation package that focuses on incentivizing clean energy, lowering healthcare costs and addressing climate change.
2. Historically, Medicare Part D beneficiaries had to spend about $7,000 before catastrophic coverage kicked in, which covered 95% of remaining medication costs. In 2024, the remaining 5% co-pay was abolished.
3. Alongside the $2,000 annual limit for prescription drugs, the IRA established a program for drugmakers to provide discounts for beneficiaries who have spent more than the annual deductible.
4. After this provision goes into effect, CMS said it projects 19 million older adults will save $400 per year, on average. An estimated 1.4 million adults will reach this cap and save at least $1,000 each year between 2025 and 2029, according to the AARP.
The AARP has also predicted 420,000 Medicare Part D enrollees will save more than $3,000, and 4.1 million older adults total will see some savings by 2029. Nearly 56 million U.S. adults have a Medicare plan.
5. These savings will not apply to medications, such as chemotherapy or anesthesia, administered in hospitals and other care sites. Those are part of Medicare Part B.
6. Already, the IRA has lowered insulin costs for more than 4 million people by curbing the price for a month's supply of insulin at $35. It has also reduced costs for certain Part B drugs with prices that rose faster than inflation.
7. When Medicare Part D, a prescription drug coverage program, was created in 2003, it was banned from directly negotiating with pharmaceutical companies to lower drug costs. With the passage of the IRA, this restriction vanished.
After months of wrangling with drug companies, CMS released the negotiated prices for 10 of the nation's most expensive medicines with no generic or biosimilar alternative. The discounted list prices — which go into effect in 2026 — range between 38% and 79%. The selected medications include those for Type 2 diabetes, blood clots, heart failure and other conditions.
CMS will have negotiation powers for 15 Part D drugs for 2027, 15 Part B or D drugs for 2028 and 20 Part B or D drugs for each year after that.