The Inflation Reduction Act of 2022 that was into law on August 16 by President Joe Biden was wide-ranging in scope, encompassing changes in everything from climate change, to IRS tax enforcement, to the corporate minimum tax rate. Of particular interest to Medicare beneficiares are the the Prescription Drug Provisions, which address prescription drug pricing.
How will the Inflation Reduction Act affect Medicare Beneficiaries?
In truth, the Prescription Drug Provisions portion of the Inflation Reduction Act only brings a few changes, but their ramifications should prove significant. Changes under the Act will impact prescription drug prices, out-of-pocket costs for prescription drugs, a monthly cap of $35 on insulin costs under Part D, and certain free vaccines. It’s easiest to look at the provisions as part of a timeline based on when the changes will be implemented:
2023
Drugs rebates. Drug companies will be required to pay rebates, if prices for any Medicare-covered prescription drugs rise faster than the rate of inflation.
Cap on insulin prices. A monthly cap of $35 will be implemented for insulin costs covered under Part D. According to the Kaiser Family Foundation, 3.3 million Medicare Part D enrollees used an insulin product in 2020, including 1.7 million enrollees without low-income subsidies. The latter group spent $54 on average per insulin prescription that year. Please note that many expensive prescriptions used for type 2 diabetes are not actually insulin.
Cost-sharing for certain vaccines will be eliminated. For Medicare Part D beneficiaries, Part D plans will be required to cover all adult vaccines recommended by the Advisory Committee on Immunization Practices, without cost-sharing or the application of a deductible (other than vaccines covered under Part B).
2024
Part D co-insurance costs eliminated after reaching out-of-pocket maximum. Once a Medicare beneficiary’s annual out-of-pocket expenses for covered drugs reach the out-of-pocket maximum, co-insurance costs go from 5% to zero. Currently, Part D beneficiaries have an out-of-pocket threshold of $7,050, and after that they must pay 5% of subsequent drug costs without limitation.
Increase in eligibility for Part D subsidy. Beneficiaries earning up to 150% of the Federal Poverty Level will be eligible for full benefits under the Part D subsidy.
2025
Out-of-pocket threshold lowered. The out-of-pocket threshold for Part D beneficiaries will be lowered from $7,050 to $2,000.
2026
Drug price negotiation. Medicare will be allowed to negotiate the prices of 10 high-cost Part D prescription drugs. Drugs open to negotiation will be high-cost drugs with long-time FDA approval that have no generic alternative. Currently, the 2003 Medicare Modernization Act that established Part D prohibits price negotiations for drugs offered under Medicare.
2027
Drug price negotiation - cont’d. Medicare can negotiate the prices of an additional 15 Part D high-cost prescription drugs.
2028
Drug price negotiation - cont’d. Medicare can negotiate the prices of an additional 15 Part B and Part D prescription drugs.
2029
Drug price negotiation - cont’d. Medicare can negotiate the prices of an additional 15 Part B and Part D prescription drugs.
Overall, the changes implemented by the the Prescription Drug Provisions portion of the Inflation Reduction Act will be welcome news to most Medicare beneficiaries. Additionally, the Congressional Budget Office projects that the changes will reduce the federal budget deficit by $288 billion over a next decade, many due to the cost savings brought by the drug price negotiation provision.