The Inflation Reduction Act was signed into law in August 2022 with much fanfare, citing how it will improve the lives of America’s retirees by saving its 48 million Medicare Part D enrollees money on prescription drug out-of-pocket expenses. It is also intended to lower spending by the federal government.
So, how important is the cost of healthcare to retirees? The Boston College Center for Retirement Research found that at the median, retirees are only left with 75% of their Social Security benefits (and 88% of total income) after paying out-of-pocket medical costs (premiums, coinsurance and other uncovered expenses, but not long-term care).
The new law will affect few Medicare beneficiaries at first, but it expects to offer the hope of better protection in the future when retirees might face high drug costs.
A review of the Inflation Reduction Act shows the changes, when they begin and who might benefit:
2023: Drug price increases can’t be higher than the inflation rate
Starting in 2023, if prices for Medicare-covered drugs rise faster than the inflation rate, the manufacturers will have to pay a rebate to the federal government. While the benefit doesn’t flow directly to Part D enrollees, it will help limit annual drug price increases for Medicare recipients and possibly put downward pressure on Part D premiums.
2023: Out-of-pocket insulin costs will have a cap
One in three Medicare beneficiaries has diabetes. And over 3.3 million use insulin, a drug that has increased in price inexplicably over the years. So in 2021, the Centers for Medicare & Medicaid Services (CMS) started a 5-year test of a voluntary Part D Senior Savings Model where Medicare beneficiaries could get insulin at a predictable cost of $35 or less for a one-month supply. On average, it should save them $446 a year for out-of-pocket insulin costs.
Without waiting for the results of the CMS test, starting in 2023, the Inflation Reduction Act is capping the cost of insulin products covered in Medicare Part D plans or furnished through durable medical equipment under Medicare Part B to $35 per month.
Takeaway action step: If you are an insulin user, visit Medicare.gov or call 1-800-MEDICARE (1-800-633-4227) to see if you can participate in the Part D Senior Savings Model while waiting for the Inflation Reduction Act to go into effect in 2023.
2023: Adult vaccines will no longer have any cost-sharing
In 2020, 4.1 million Medicare Part D enrollees received vaccines, most of which were for shingles prevention. Whereas flu and Covid-19 vaccines are often free, the rest have not been, and a shingles shot could cost up to $200.
One benefit of the Inflation Reduction Act is that, as of 2023, all vaccines covered by Medicare Part D will be free. In addition, adult vaccines will be more readily available through Medicaid and the Children’s Health Insurance Program (CHIP).
2024: More beneficiaries will have full Extra Help subsidies
Extra Help’s Part D Low-Income Subsidies (LIS) have only offered partial benefits for some low-income beneficiaries. They only covered part of the Part D premium, standard deductible and coinsurance and left a modest copay for drugs above the catastrophic threshold.
By expanding the eligibility, in 2024, those with incomes between 135% and 150% of the federal poverty level may now be eligible for the full LIS benefits. That means no Part D premium or deductible, only modest copays until they reach the catastrophic threshold and no cost-sharing for the rest of that year.
In 2020, 400,000 Medicare beneficiaries received only partial benefits. Eligibility for full benefits in 2024 will save them on average $300 a year.
2024: Part D annual premium increases are limited
Starting in 2024 and running until 2030, the national base beneficiary premium for Part D prescription drug plans can grow no more than 6% per year. Although this is just one component of an enrollee’s premium, it may slow down the growth of premiums over time.
2024: No more 5% coinsurance fee during the Part D catastrophic phase
With Medicare Part D prescription drug plans, the coinsurance portion paid by enrollees changes as their spending passes through different levels. (“Spending” is made up of the enrollee’s out-of-pocket payments plus some manufacturer discounts.) For example, in 2022, when spending reaches $7,050, the enrollee has reached the “catastrophic coverage” phase and only pays 5% coinsurance on drugs until the end of that year.
Starting in 2024, the Inflation Reduction Act does away with that 5% coinsurance. However, because a $2,000 out-of-pocket cap goes into effect in 2025, this benefit is only relevant for 2024.
2025: Out-of-pocket spending for drugs will be capped at $2,000
This change can lead to direct savings for some seniors because, in the past, there was no out-of-pocket spending limit for Medicare Part D. Starting in 2025, the law places a $2,000 cap on how much Medicare beneficiaries spend on drugs. The cap will increase yearly according to Medicare’s annual spending for covered drugs.
Once an enrollee reaches the cap, there will be no more copays or coinsurance for covered drugs for the rest of that year. The savings could reach thousands of dollars each year for seniors dependent on expensive drug treatments, such as for multiple sclerosis, hepatitis C or cancer.
While this benefit may not affect most Medicare recipients, the Kaiser Family Foundation estimates it will help 1.4 million people who spend more than $2,000 yearly on drugs.
2026: Medicare will negotiate the purchase price of drugs
This is a first, as Medicare has never been allowed to negotiate drug purchase prices with manufacturers. But, unfortunately, it won’t affect all drugs. Initially, it will include some costly, single-source drugs without generic or biosimilar competitors.
This change starts in 2026 with ten such drugs covered by Medicare Part D. Then 15 more Part D drugs In 2027; another 15 Part B and Part D drugs in 2028; and yet another 20 Part B and Part D drugs in 2029 and beyond.
Medicare prescription drug plans must include these negotiated drugs on their formularies, so if you take one of the drugs, your plan must cover it.
In addition to the savings to Medicare recipients using the affected drugs, the cost savings for Medicare will be over $100 billion over the next ten years, which could eventually flow down to retirees as lower Medicare premiums.