Seniors won't pay more than $2K for drugs at the pharmacy starting in January

Medicare beneficiaries who take a lot of pricey medications will get a big break in 2025. That's when the $2,000 annual cap on out-of-pocket costs for drugs bought at the pharmacy or through mail order takes effect.

The limit is one of the 2022 Inflation Reduction Act's most consequential provisions to lower prescription drug prices for Medicare enrollees. The law also instituted a $35 monthly cap on insulin prescriptions, enabled beneficiaries to get more vaccines at no cost, allowed Medicare to negotiate the prices of certain medications and required drug makers to pay a rebate to Medicare if they hike prices faster than inflation.

Before the law, there was no cap on what Medicare enrollees might have to spend on medications covered by their Part D drug plans. They were on the hook for 5% of their drugs' cost in the so-called catastrophic coverage phase, which, in 2023, began when they hit $7,400 in out-of-pocket spending. The federal government paid 80% of the cost, while insurers paid 15%.

An interim ceiling of roughly $3,500 was in place for 2024.

"The cap offers some peace of mind that you won't have to leave the pharmacy empty handed because you can't afford the cost of your drug," said Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, a nonpartisan health policy organization.

More than 3 million enrollees who do not receive Medicare's low-income subsidy should benefit from the $2,000 cap, according to AARP. That figure will rise to more than 4 million in 2029. About 40% of beneficiaries who reach the limit between 2025 and 2029 will see an estimated annual savings of $1,000 or more.

More than half a million Part D enrollees reached this year's $3,500 cap by the end of June, saving an average of about $1,800, according to the Department of Health and Human Services. (This figure does not include those eligible for Medicare's low-income subsidy, who typically don't have to pay anything for medications in the catastrophic phase.)

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The provision does not apply to medications administered in doctors' offices, such as certain chemotherapy or infusions covered by Medicare Part B.

Another benefit of the law is that enrollees can spread out paying for their medications over a calendar year. This can be particularly helpful for those who face steep drug costs early in the year. They may have to ask their insurer to enroll them in a payment program or sign up when they are at the pharmacy, Cubanski said. Their insurer will then bill them.

However, not that many people are aware of the provision limiting out-of-pocket costs. Only about one-third of voters age 65 and older knew of it, while just over a quarter of voters were generally aware, according to a KFF poll conducted in late August and early September.

Potential premium hikes

The restructuring of the Medicare Part D drug program led some insurers to propose steep premium hikes in their standalone drug plans, prompting the Biden administration to offer carriers hefty new subsidies that could total about $5 billion next year to avert the increases.

In addition to the $2,000 limit, the Inflation Reduction Act requires insurers to be on the hook for more of the costs once enrollees hit the catastrophic phase above the cap. Starting in January, insurers will cover 60% of drug costs, with Medicare and drug manufacturers splitting the remaining 40% for brand-name drugs and Medicare picking up the full 40% for generic medications.

"Plans are picking up a tab for more of their enrollees' prescription drug costs compared to before when there was no out-of-pocket cap," Cubanski said. "So when plan costs go up, that generally translates into higher premiums for coverage."

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The subsidy program doesn't apply to drug coverage within Medicare Advantage plans, which offer a broader array of health coverage and can more easily curtail premium increases by changing other benefits or drawing on other government funding.

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