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On August 16th, President Biden signed the Inflation Reduction Act of 2022. It'll transform Medicare's prescription drug coverage through provisions allowing the program to
negotiate prices of some medications with drugmakers,
cap out-of-pocket costs for beneficiaries, and
make vital vaccines free to enrollees.
As with many new pieces of legislation, these changes will roll out over time. Here's a look at how and when the legislation will affect Medicare beneficiaries. The law's benefits will apply to both people enrolled in original Medicare and those who belong to Medicare Advantage plans.
2023
Vaccines
Vaccines recommended for adults by the Centers for Disease Control (CDC) and the Advisory Committee on Immunization Practices (ACIP) will be free to Medicare beneficiaries. Notably, the vaccine for shingles, a two-shot regimen that cost hundreds of dollars, will be available at no cost.
Insulin
Beginning in 2023 and continuing through 2025, copays for a 30-day supply of insulin covered by Medicare Part D will be capped at $35. This copay amount will be in place even if an enrollee hasn't yet satisfied their annual Part D deductible. In 2026 and beyond, the monthly insulin copay will be $35 or 25% of the medication's negotiated price, whichever is lower.
Price hike penalties
Pharmaceutical companies will be subject to penalties if they raise their prices more than the rate of general inflation. These companies will have to pay Medicare a rebate in the amount of their price hike that was above inflation. The penalty will apply to all Medicare sales of that particular drug.
2024
Part D out-of-pocket costs
Medicare beneficiaries will no longer have any out-of-pocket costs once they enter what Medicare calls catastrophic coverage. The way catastrophic coverage works now is that once an enrollee's out-of-pocket costs reach $7,050, they must pay 5% of their prescription drug costs, with no limit. But beginning in 2024, that 5% coinsurance requirement will be gone, and enrollees won't have to pay anything for their prescription drugs for the rest of the year.
Part D premium limitation
From 2024 through 2029, Part D plans cannot increase their premiums by more than 6% a year. Beyond 2029, it'll be up to the secretary of Health and Human Services to determine the premium growth limit.
Financial aid
The government will expand the eligibility for the Extra Help program, which assists people with limited incomes in affording their prescription drug costs, such as premiums and copays. In 2024 the income threshold that will qualify Medicare enrollees for the program will increase from 135% of the federal poverty level to 150%. The current income threshold for an individual is $20,385.
2025
Out-of-pocket costs
Beginning in 2025 and beyond, the maximum amount you'll have to pay out of pocket for prescription drugs each year will be $2000. Here are a few key details:
This out-of-pocket limit applies if you get your prescription drugs through a stand-alone Part D plan or if you access your Medicare through a private Medicare Advantage plan that covers prescription drugs.
The amount of the cap could change over time. If what Medicare Part D spends on prescription drugs per enrollee increases, that $2000-a-year cap could also rise.
If your Part D or Advantage plan has a prescription drug deductible, that'll count toward the cap. So, if your deductible is $100, once you've met that, your out-of-pocket costs will be capped once you've spent another $1,900 that year.
Another change to the Medicare drug benefit that begins in 2025 is the requirement that Part D plans offer enrollees the option of what's called smoothed cost-sharing. This means you can opt to have your out-of-pocket costs spread over the year. This is designed to protect people from being hit with such a big drug bill at one time that it may discourage them from filling prescriptions.
2026
Price negotiations
Consumers will begin to benefit from the prescription drugs under Part D that'll be subject to price negotiations. Medicare will negotiate prices for up to ten drugs in 2026, up to fifteen drugs in 2027 and 2028, and up to twenty drugs in 2029 and beyond. For Medicare Part B drugs (those typically administered in a hospital or doctor's office), price negotiations will take effect in 2028.
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