Medicare beneficiaries are in for some big savings under the Inflation Reduction Act, which is ushering in a new era of negotiating drug prices and capping out-of-pocket expenses.
The Inflation Reduction Act has a few key components that specifically target the needs of the older Americans Medicare covers — three will be effective at the beginning of 2023, and the rest in a few years. These provisions affect how much beneficiaries will spend on their medications, as well as the total they’ll pay out-of-pocket each year.
Biden signed the Inflation Reduction Act earlier this week–it is considered a major win for Democrats with its focus on healthcare spending, climate change and corporate taxation. Along with the changes to Medicare, the law offers energy bill rebates and credits for heat pumps or electric vehicles. Major corporations will also see a 15% corporate minimum tax while the Internal Revenue Service will get $80 billion in new funding over the next 10 years.
What to look for after Dec. 31, 2022
Beginning in 2023, drug prices will be linked to the Consumer Price Index — the measurement for inflation — and drug companies that raise their prices faster than the rate of inflation will have to pay rebates. Previously, there were no regulations around the rising costs of drug prices, said Ari Parker, head Medicare adviser and co-founder of Chapter, a company that specializes in maximizing Medicare coverage. “Here the government is setting a hard and fast limit,” he said.
Insulin copays are also being limited to $35 per month, but only for those covered by Medicare. More than 3.3 million Medicare beneficiaries with diabetes use insulin. The average patient requires two vials a month, but the price per vial can be “catastrophic.” For example, the average price for one insulin unit in October 2021 was 31 cents with the standard insulin medication having 100 units per milliliter, according to GoodRx. Thus, a 10 mL vial — the standard — would cost $310 per vial.
The last provision going into effect for the new year will limit cost-sharing expenses for adult vaccinations covered under Medicare Part D, which can be pricey. For example, the shingles vaccine costs almost $200 per shot, and patients receiving the vaccine need two shots, Parker said.
What the future holds
Beneficiaries can look forward to even more savings in the years to come, however, Parker said.
Out-of-pocket costs for Medicare beneficiaries will be capped at $2,000 per year beginning in 2025 — a provision that may save some Americans thousands of dollars per year on healthcare.
Currently, Part D beneficiaries have a few phases for paying for their medications. First, they may have to pay up to $480 in deductibles. Then they have to pay 25% of the plan’s cost for drugs, where the limit is upped to $4,430. The third phase is known as the “doughnut hole” phase, where beneficiaries must pay up to $7,050. The last phase, when Medicare will take on the bulk of the drug costs, is known as the catastrophic coverage phase, which is a 5% coinsurance for the beneficiary. (The catastrophic coverage phase will be eliminated in 2024 under the Inflation Reduction Act.)
Typically, Americans with specialty medications, such as chemotherapy pills, or even just an expensive brand-name drug, could spend thousands more than the new $2,000 limit the Inflation Reduction Act creates.
“It wouldn’t be uncommon for a senior to spend $6,000 to $8,000 on drug costs,” said Chris Orestis, president of Retirement Genius, a financial planning site for retirement and long-term care. With the new law, “once you hit $2,000 out-of-pocket, you’re capped for the rest of the year and you don’t have to keep digging out of your pocket.”
Medicare will be able to negotiate drug prices the following year, beginning in 2026. Under the law, the agency will start by negotiating the cost for 10 drugs (which the government will determine at a later time). The number of drugs up for negotiation will rise every few years.
When working together, these two provisions will have a drastic impact on beneficiaries, Parker said. With Medicare’s annual enrollment period coming up in October, beneficiaries should review their options now to make the most of these changes and ensure they have the best plan for their healthcare needs. “There will be significant savings to unlock,” he said.