Skip to content
Link copied to clipboard

How Medicare drug costs could change under the Inflation Reduction Act

What changes are on tap to the way Medicare pays for prescription drugs under the Inflation Reduction Act?

The Inflation Reduction Act includes measures to control drug costs for Medicare Part D plans.
The Inflation Reduction Act includes measures to control drug costs for Medicare Part D plans.Read moreElise Amendola / AP

Along with more than a third of the U.S. population, Nancy Amols has high cholesterol.

The Allentown resident is able to manage her levels with Nexletol, the first of a new class of specialty medications for people who haven’t been able to lower their cholesterol with the more popular statins.

It’s expensive. Under her Medicare plan, Amols would have had to pay $500 for a 30-day supply of the drug. She was able to find a discount drug program that offered it for $400 a month, but that’s still an annual tab of $4,800.

“That’s an outrageous price for a lifesaving medication,” Amols said.

Yet she pays because without it, doctors have told her she is at risk of having a stroke or losing vision because of the locations of the plaques in her arteries.

New drug cost control rules in the Inflation Reduction Act that received final approval from Congress on Friday would cut Amols’ monthly medication bill by more than half. The bill includes a range of policies aimed at curbing inflation, including a $2,000 annual cap on the amount people covered by Medicare can be required to pay for prescription medications.

Among the other changes to Medicare prescription drug plans: a $35 per month limit to insulin costs and the ability for Medicare to negotiate drug prices — a change that has stalled in Congress for years.

The legislation does not currently include a plan to tackle drug costs paid by the millions of people covered by private health plans, but consumer advocates are optimistic that tackling Medicare drug costs could be a catalyst for future cost control measures.

More immediately, it would relieve a major financial stressor for seniors — and the extended families who care for them, said Robin Stelly, a statewide organizer with Pennsylvania Health Access Network, which advocates for affordable health coverage.

“The burden isn’t just to that consumer, it’s the whole family,” Stelly said. “It’s generational worry and stress.”

Let’s unpack:

Why doesn’t Medicare negotiate drug prices already?

Politics! Prescription drug coverage is a relatively new benefit to Medicare, the publicly funded health coverage for people who are 65 and older, or disabled.

The Part D benefit, through which people with traditional Medicare can purchase coverage for prescription drugs, was created in 2003, 38 years after Medicare was first launched. But in order to get enough Republicans to join the Democrat-proposed idea, they struck a compromise: Medicare can cover prescription medication, but cannot negotiate prices or create its own drug formulary, which is a tiered list of covered medications that favors less-expensive options, according to a history of Medicare drug pricing published by the journal Health Affairs.

In the private sector, pharmacy benefit managers negotiate with drug companies, often driving prices down by making them compete for preferential placement on their drug formularies.

How are prescription drugs currently paid for under Medicare?

People have two options for drug coverage through Medicare:

Medicare Advantage plans, which are run by private insurance companies, typically include prescription drug coverage.

Part D drug coverage can be purchased by anyone who is covered by original Medicare. Part D plans have a monthly premium, and many have a deductible (the amount you must pay out of pocket until the plan begins paying a greater share of the cost), which varies but can’t exceed $480. The amount you pay for a specific medication will depend on whether you have met your deductible, what your copay is, and how much money you and your plan have collectively spent on medications that year.

When will Medicare start negotiating drug costs?

Beginning in 2026, Medicare would be able to negotiate directly with manufacturers in an attempt to secure lower prices for a limited number of medications, under the Inflation Reduction Act. Medicare would only be able to negotiate prices for expensive medications that are available from only one manufacturer, without generic or similar alternatives.

Medicare will be limited in how many drugs it can target for price negotiation per year, starting with 10 the first year of the program, according to an article by Rachel Sachs, an associate professor of law at Washington University in St. Louis that was published by Health Affairs.

Negotiating the prices of a small number of high-priced drugs could make a major dent in Medicare drug spending, experts said.

Kaiser Family Foundation estimates that the 10 top-selling Part D covered drugs that do not have a generic or biosimilar competitor accounted for 0.3% of all covered medications, but 16% of spending in 2019. Insulins used to treat diabetes and cancer medications make up a majority of the top 10.

“Medicare is the major payer for all older adults — that’s a huge leverage” when negotiating prices with drug companies, said Joseph D. Tariman, associate dean for clinical innovation at Rutgers University’s School of Nursing, who studies drug pricing.

How will the amount I pay for medications under Medicare change?

Out-of-pocket spending will be capped at $2,000 beginning in 2025 for people with Medicare Part D plans, under the Inflation Reduction Act. Beginning in 2024, Medicare would also do away with the 5% cost sharing that people currently pay once they’ve reached their plan’s “catastrophic phase.”

How will insulin prices be affected by the changes to Medicare?

Monthly insulin costs will be capped at $35 beginning in 2023 for people with Medicare Part D plans, under the Inflation Reduction Act.

That’s a significant reduction from the $54 per month average Medicare beneficiaries spent on insulin in 2020, according to analysis by the Kaiser Family Foundation. The number of people with Medicare Part D who use insulin has nearly doubled, from 1.34 million people in 2007 to 3.26 million people in 2020. At the same time, out-of-pocket spending on insulin topped $1 billion in 2020, up 335% since 2007, according to the Kaiser Family Foundation.