The Inflation Reduction Act of 2022 introduces several significant changes to prescription drug plans, particularly for Medicare beneficiaries. I personally would argue these are the most fundamental changes to Medicare Part D (and Medicare Advantage as well) we’ve seen since they began in 2006.
Spoiler Alert: Some of it is good news, and some not.
Starting January 2025, the new laws try to make medications more affordable through several key measures:
- Out-of-Pocket Cap: There will be a $2,000 annual cap on out-of-pocket costs for Medicare Part D plans. This means that once your spending on covered drugs reaches $2,000 in a year, you won’t have to pay any more out-of-pocket costs for the rest of the year.
Good News: You may be able to spend less than $2000 next year, especially if some of your meds are name brand.
- Smoothing Out-of-Pocket Costs: Beneficiaries will have the option to “smooth” their out-of-pocket expenses, allowing them to spread these costs over the course of the year rather than paying large sums all at once. This can help with budgeting and managing healthcare expenses more consistently each month.
Good News: We think this will help some folks but still waiting to see how many.
- Phasing in Cost Sharing by Plans and Manufacturers: The act includes provisions for changing the share of costs that insurance plans and drug manufacturers must cover during catastrophic coverage phases, potentially reducing the burden on beneficiaries.
Good News: No more “Donut Hole” or “Catastrophic” phase after it.
- Continued Price Negotiations: Building on the introduction of Medicare’s ability to negotiate drug prices, the act expands these negotiations, covering more drugs over time. Lower negotiated prices are expected to help reduce costs for patients.
Neutral News: Looks like the lower costs aren’t actually coming to be so far. Additionally, it looks like the costs are just shifting to more expense for those on Medicare Advantage (or less possibly benefits). Stay tuned here.
- Inflation Rebates: Drug manufacturers will be required to pay rebates if they increase prices faster than the rate of inflation. This creates a financial disincentive against sharp price hikes, aiming to ensure more predictable and equitable drug pricing.
Neutral News: Looks like the PBMs (Pharmacy Benefit Managers) may be able to shift some of those increased expenses to the medical side of Advantage plans resulting in reduced benefits.
- Deductibles and Choices: Many people saw large increases in deductibles, smaller formularies (covered drugs on the plans) and less plans available.
Bad News: Self-explanatory.
The goal is to reduce cost reduce the financial burden of prescription medications for seniors and other Medicare beneficiaries, making essential treatments more accessible and affordable. The jury is still out on how successful these changes will be for most Medicare beneficiaries.
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These changes collectively aim to significantly reduce the financial burden of prescription medications for seniors and other Medicare beneficiaries, making essential treatments more accessible and affordable.