What’s at stake in the Inflation Reduction Act?
The Inflation Reduction Act of 2022 took historic steps toward making drug prices more affordable for older adults and other Medicare enrollees through several important policy changes:
1. The Inflation Reduction Act redesigned elements of the Medicare Part D drug benefit to lower costs for enrollees, including by:
a. Capping annual out-of-pocket drug costs for Medicare Part D enrollees at $2,000 beginning in 2025: As a first step, the Inflation Reduction Act established an effective cap of roughly $3,300 for 2024 by eliminating cost-sharing during what was the “catastrophic coverage” phase for Part D enrollees.
b. Allowing enrollees to spread out their total annual Medicare Part D out-of-pocket costs over the course of the year
c. Capping out-of-pocket insulin costs at $35 per month
d. Eliminating out-of-pocket costs for all recommended routine adult vaccines
e. Fully expanding the low-income subsidy (LIS) program—known as “Extra Help”—to people with limited resources who earn less than 150 percent of the federal poverty level
f. Eliminating the Medicare Part D coverage gap phase and restructuring Part D discount programs
2. For the first time, the Centers for Medicare and Medicaid Services (CMS) is negotiating prices for some of the most expensive and highly utilized prescription drugs. CMS announced the first 10 drugs selected in August 2023. These drugs are currently undergoing price negotiation; the maximum fair prices will be published by September 2024 and will take effect in January 2026. Up to 80 drugs will undergo negotiation by 2030, with a subset of drugs phased in each year.
3. CMS now requires drug companies to pay rebates to Medicare if they hike drug prices above the inflation rate.
Note: This out-of-pocket cost analysis considers the impact of losing the Medicare Part D redesign provisions detailed in 1a–f above.