In August, lawmakers passed the Inflation Reduction Act, the largest-ever bill aimed at combatting climate change. The bill will raise $769 billion in revenue and invest $369 billion in energy security and climate change.
But baked into the bill are also provisions that could significantly help seniors enrolled in Medicare, the federal health-insurance program for people who are 65 and older. Let's take a look at what these changes are and how they could save Medicare enrollees thousands of dollars in the coming few years.
1. Increasing Medicare's negotiating power
For years, the federal government hasn't been able to play any role in negotiating drug prices under Medicare Part D between large pharmaceutical companies and pharmacies, due to a noninterference clause. The federal government also doesn't play any role in negotiations for certain drugs covered under Medicare Part B.
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The cost of prescription drugs has soared by 285% since 2000, according to a study conducted by the nonpartisan Senior Citizens League. That same study also estimates that Medicare Part B premiums have shot up by 274% in the same time frame.
The Inflation Reduction Act will allow the Secretary of the U.S. Department of Health and Human Services to negotiate drug prices for 10 drugs with the largest Part D spending in 2026, then an additional 10 part D drugs in 2027, and 15 part D and Part B drugs in 2028. These negotiations could reduce prices for the 25 most expensive drugs in Medicare by as much as 25% in 2026 when the provision is enacted, according to analysts.
2. Capping out-of-pocket drug costs
Another big thing the Inflation Reduction Act will do is eventually cap out-of-pocket drug costs to $2,000 per year.
Under the current law, Medicare enrollees could pay as much as $7,050 out of pocket for drugs, although a solid portion of this gets reduced by the manufacturer's discount on brand-name drugs. Even after this discount, though, seniors could end up paying $3,100 out of pocket.
But even after reaching that $7,050 "catastrophic threshold," seniors still pay another 5% of their total drug costs before the end of the year unless they qualify for low-income subsidies. In theory, this means that under the current law, drugs costs could be theoretically unlimited.
The new provision in the Inflation Reduction Act will eliminate this 5% coinsurance clause in 2024, which would effectively cap out-of-pocket costs at somewhere around $3,250 based on likely inflation adjustments between now and then. Starting in 2025, out-of-pocket drug expenses for Medicare enrollees would have a specific cap at $2,000 per year.
According to the Kaiser Family Foundation, there were 1.3 million Medicare plan D enrollees in 2020 that didn't qualify for low-income subsidies and spent approximately $2,700 out of pocket on brand-name drugs. If they could cut those costs by $700 annually, those savings can quickly add up over a few years.
3. Capping insulin co-pays
The Inflation Reduction Act will limit monthly copays for insulin to $35 under both part B and part D plans. There will be no deductible, either. By 2026, insulin copayments will be the smaller amount of $35 or 25% of the negotiated price in Part D plans.
This is a big improvement when you consider that in 2020, Medicare plan D enrollees who didn't qualify for subsidies paid $54 out-of-pocket, on average, per month for insulin per prescription.
