What the Inflation Reduction Act Means for Medicare Part D Prescription Drug Plans

In August this year, Congress passed the Inflation Reduction Act of 2022. Many aspects were included in the act, but today, we’re going to review the ones that will impact Medicare beneficiaries next year and in the future.

Medicare beneficiaries should understand how the Inflation Reduction Act will impact their Medicare Part D prescription drug coverage and prices.


Impact on Out-of-Pocket Spending

Four separate provisions within the Inflation Reduction Act will help reduce beneficiaries’ out-of-pocket spending on their prescription drugs.

Maximum Out-of-Pocket Limits

Out-of-pocket costs will be reduced in several different ways. First, in 2024, the catastrophic phase of drug plans will no longer require any coinsurance on the part of the beneficiary. Right now, it requires a coinsurance of about 5%. Then, starting in 2025, there will be a $2,000 limit on all prescription spending. As long as the prescriptions are covered by the plan, beneficiaries will pay no more than $2,000 for the calendar year.

That out-of-pocket spending cap will be especially helpful to individuals who take higher-priced prescriptions like those for cancer and multiple sclerosis. For example, Revlimid (a cancer drug) costs each beneficiary approximately $6,200 each year. The multiple sclerosis drug Avonex costs about $4,100. It’s easy to see how beneficiaries will benefit from the new limits.

In addition, premium increases will also be limited beginning in 2024.

Insulin Cost-Sharing Limits

A select number of Part D plans have participated in the Senior Savings Model for years. The program limits cost-sharing on some insulins to just $35 per refill. The program was completely voluntary, so not all plans participated. But, starting in 2023, all plans must offer $35 insulin cost-sharing in their plans.

Vaccine Cost-Sharing Limits

Starting in 2023, vaccines that are covered by Medicare Part D will no longer require any cost-sharing. Many beneficiaries have been surprised at their coinsurance amounts for common vaccines like the shingles vaccine. While it was covered, it was susceptible to the deductible and cost several hundred dollars to get.

Extra Help Program Expansion

Extra Help is a nationwide program that offers financial assistance to individuals with limited incomes. Depending on your eligibility, it can help pay for Part D premiums, deductibles, and coinsurance amounts. Beneficiaries enrolled in Extra Help are not subject to the Medicare donut hole (the coverage gap), nor do they have to pay the Part D late-enrollment penalty if one was incurred.

Currently, to get the full Extra Help benefits, you must fall below 135% of the Federal Poverty Level (FPL). Partial help is available for those under 150% of the FPL. In 2024, full benefits will be available for incomes up to 150%.


Impact on Prescription Prices

The Inflation Reduction Act also includes two provisions that will help control the costs of prescription drugs.

Prescription Drug Price Negotiation

The Medicare program has never been allowed to negotiate drug prices. Prescriptions that do not have generic competitors or versions are the ones that cost the program and beneficiaries the most money. In 2026, Medicare will begin negotiating prices for some of the highest-priced brand-name drugs. Negotiations are limited to prescriptions that are covered by Part B or Part D and those that are at least nine years post-FDA approval.

The negotiation timeline is as follows: 

  • 2026: 10 Part D drugs
  • 2027: 15 Part D drugs
  • 2028: 15 Part B and D drugs
  • 2029 and on: 20 Part B and D drugs

Manufacturer Rebates

This provision begins in 2023. Beneficiaries will not be the recipient of any rebates, but it will have an indirect impact on their drug costs. Any drug manufacturer that raises its prices faster than the rate of inflation will be required to pay rebates to the Medicare program. Half of the prescriptions covered by Medicare increased at faster rates than inflation from 2019 to 2020.

Though spending by private insurance won’t be taken into consideration, this provision could impact those individuals as well if they utilize Medicare-approved drugs.

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