Inflation Reduction Act of 2022 – We’re all painfully aware of how inflation has impacted our budgets and our wallets. Medicare beneficiaries may see some good news coming their way over the next few years after the recent introduction of the Inflation Reduction Act. There are many components of the act, but we’re going to focus on how it will impact prescription drug coverage for those enrolled in Medicare.
Impact on Drug Prices
Two of the provisions within the Inflation Reduction Act will have a direct impact on the cost of prescription drugs.
Drug Negotiation
The federal government has never been allowed to negotiate drug prices for Medicare. The highest spending is for relatively few drugs – mostly those that do not have generic versions or competitors. Starting in 2026, Medicare will be able to negotiate the price for name-brand and biologic drugs that are covered by Medicare Parts B and D. Negotiation is limited to drugs within certain FDA approval timelines (at least nine years for small-molecule drugs and 13 years for biologicals). The negotiation timeline is as follows:
- 2026: 10 Part D drugs
- 2027: 15 Part D drugs
- 2028: 15 Part B and D drugs
- 2029 and on: 20 Part B and D drugs
There is not yet an official list of which drugs will be included in price negotiation, so it’s hard to say how much beneficiaries may save with this provision.
Manufacturer Rebates
This provision will go into effect in 2023. It requires drug manufacturers to pay rebates if their prices increase faster than the rate of inflation. According to Kaiser Permanente, half of the drugs covered by Medicare increased faster than inflation from 2019 to 2020. In fact, a third of those prices increased by 7.5% or more. (The rate of inflation was approximately 1% during that time.) Rebates will be paid directly to the federal Medicare program.
Though spending via private insurance will not be taken into account, the provision could impact those individuals as well if they utilize Medicare-approved drugs.
Impact on Out-of-Pocket Spending
The Inflation Reduction Act includes four provisions that will reduce Medicare beneficiaries’ out-of-pocket spending on prescriptions.
Out-of-Pocket Limits
Out-of-pocket spending will be reduced in several ways. First, coinsurance during the catastrophic coverage phase will be eliminated in 2024. Then, in 2025, a $2,000 cap on prescription spending will be put into place.
Currently, beneficiaries pay 5% of the cost during this final phase of coverage, which they enter after having spent a certain amount on their prescriptions. The catastrophic threshold changes each year, but in 2022 the amount is $7,050. Beneficiary cost-sharing and manufacturer discounts are both included in that total, but beneficiaries’ out-of-pocket costs to meet that number are usually around $3,000.
The out-of-pocket spending limit will be especially useful to those who take high-priced prescriptions, like those for multiple sclerosis and cancer. For example, the cancer drug Revlimid costs beneficiaries an average of $6,200 each year of use. Avonex, a drug to treat multiple sclerosis, costs $4,100 per year.
Part D premium increases will also be limited starting in 2024.
Insulin Cost-Sharing
Some Part D plans already participate in Medicare’s Senior Savings Model, a program that limits cost-sharing on certain insulins to $35 for a one-month supply. The program is voluntary, so until now, not all plans have included it. Starting in 2023, Medicare beneficiaries will have their cost-sharing for insulin capped at $35, regardless of which plan they’re enrolled in.
Approximately 3.3 million people enrolled in Part D used insulin in 2020, spending an average of $54 per insulin refill. Those numbers included people enrolled in a low-income subsidy.
Vaccine Cost-Sharing
Beginning in 2023, vaccines covered under Part D will no longer have cost-sharing responsibility. In previous years, many beneficiaries were surprised by the cost of the shingles vaccine, which was covered by Part D but was subject to the annual deductible.
Extra Help Expansion
Extra Help is a nationwide program that offers financial assistance to those with limited incomes. It can help pay for Part D premiums, cost-sharing amounts, and deductibles. Individuals enrolled in Extra Help are not subject to the Medicare coverage gap, nor do they have to pay a late-enrollment penalty if one was incurred. Currently, to get full Extra Help benefits, individuals must fall below 135% of the Federal Poverty Level. Partial help is available for those who fall under 150% of the FPL.
In 2024, full Extra Help benefits will be granted to those with incomes up to 150% of the FPL. These individuals will not pay any premiums or deductibles for Part D and only minimal copayments for prescriptions.
