New Law to Reduce Medicare Out-of-Pocket Drug Costs
President Biden has signed into law legislation that will cap insulin prices and annual out-of-pocket costs for Medicare recipients, an action that can save seniors who rely on expensive medications thousands of dollars a year.
The expansive Inflation Reduction Act of 2022 includes among its Medicare provisions:
An annual drug out-of-pocket cap” The law imposes a $2,000 cap on annual out-of-pocket drug costs for enrollees, starting in 2025. After that, the annual cap will be indexed for inflation.
This is a huge development. The Kaiser Family Foundation (KFF) estimates that some 1.3 million Medicare Part D enrollees will benefit from this provision, particularly those who have to manage chronic conditions.
Currently, the Part D (Medicare pharmaceutical coverage) catastrophic cost limits take effect after enrollees spend more than $7,050 out of pocket. After that, they pay 5% of drug costs without limits.
Under the new law, Part D beneficiaries will pay nothing after they spend $2,000 out of pocket on drugs.
An insulin cap” The law imposes a monthly cap of $35 on insulin costs under Part D. Again, this is a huge development, considering that some 3.3 million Medicare beneficiaries use some form of insulin, according to the KFF. This provision takes effect in 2023.
According to the foundation, the average out-of-pocket Medicare beneficiary cost for insulin is $54 a month. But for some people, the costs are much higher.
Vaccines ” Starting in 2023, vaccines will be free by eliminating cost-sharing for Part D enrollees. According to the KFF, 4.1 million Medicare beneficiaries received a vaccine covered by Part D in 2020, including 3.6 million who received shingles vaccines.
Drug negotiations ” The act will allow Medicare to negotiate certain high-cost prescription drug prices covered by Parts B or D. This reverses a major provision of the 2003 law that created Part D coverage, which prohibits Medicare from negotiating prices for pharmaceuticals.
The provision will be phased in over a number of years:
- Starting in 2026, the secretary of Health and Human Services will be authorized to negotiate the prices of 10 selected prescription drugs.
- Another 15 pharmaceuticals will be added to the list in 2027 and 2028.
- Starting in 2029 and beyond, an additional 20 drugs will be added to the list annually.
The law requires that the first drugs that HHS will be able to negotiate prices for will be the top-spending brands and biologic drugs without generic or bio-similar equivalents covered under Medicare Part D and B.
The drugs must have been approved for use by the Federal Drug Administration more than nine years for so called "small-molecule" drugs, and more than 13 years for biologicals before it can negotiate for the prices.
The law details what should be considered a "maximum fair price" for the drugs using a set formula:
- Drugs approved by the FDA between nine and 12 years prior: HHS will be able to negotiate prices that are 75% of the price.
- Drugs approved between 12 and 16 years prior: HHS will be able to negotiate prices that are 65% of the price.
- Drugs approved after 16 years prior: HHS will be able to negotiate prices that are 40% of the price.
Penalties for price hikes — Starting in 2023, drug makers that increase their prices above the rate of inflation would have to pay a fine to the Medicare program.
The takeaway
Obviously, these developments will have a positive financial effect on all Medicare beneficiaries. If you have questions about your coverage, don't hesitate to give us a call.