Prescription Drug Prices to Decrease for Medicare Beneficiaries: Here’s How the Inflation Reduction Act Can Work for You

The historic Inflation Reduction Act of 2022 that was signed into law on August 16 is setting the stage for a significant reduction in healthcare costs for millions of Americans, particularly Medicare beneficiaries. It will help make prescription drugs more affordable for beneficiaries and enable others to get and keep affordable coverage on the ACA marketplaces.

Here’s a quick snapshot of how the new law can benefit you:


Starting in 2023, Medicare beneficiaries will no longer pay out-of-pocket for any recommended adult vaccines. Medicare will cover, at no cost to beneficiaries, vaccines that have been approved for adults by the CDC. Among the shots to be fully covered is the shingles vaccine, which currently requires cost-sharing for those on Part D.

Also beginning in 2023, copays for a 30-day supply of any insulin that a Medicare drug plan covers will be capped at $35. If pharmaceutical companies increase the cost of their drugs faster than the rate of inflation, they will have to pay rebates to Medicare.

Prescription drugs

Currently, prescription drugs account for approximately 20 percent of Medicare beneficiaries’ out-of-pocket costs. The new law allows CMS (the Centers for Medicare and Medicaid Services) to negotiate for the first time the price of high-cost drugs with the pharmaceutical companies. The negotiations by the US Department of Health and Human Services will begin in 2023. By 2026, after the price of the 10 costliest (“eligible”) drugs that account for the medications Medicare spends the most on, are set, will the impact be felt. By 2029, this will include the top 20 highest-spend drugs with up to 60 drugs subject to price negotiation.

(In the first year of the negotiation program (2026), the agency can negotiate for the price of only 10 drugs in Part D, a number which rises by an additional 15 Part D drugs in 2027, an additional 15 Part D or Part B drugs in 2028, and an additional 20 Part D or Part B drugs in 2029 and subsequent years. Given that large shares of Medicare drug spending are attributable to just a few drugs, as Kaiser Family Foundation analyses have shown, this limitation still leaves room for the law to achieve significant savings.)

The drugs selected will be among the 100 medications that Medicare spends the most on. The drugs selected for negotiation cannot have any direct competition from generic or biosimilar alternatives. And they have to have been on the market for a certain number of years.

Out-of-Pocket Pharmacy Drugs                                                                                                                    

The new law also will protect Medicare beneficiaries from “catastrophic” drug costs. There will be a new cap on out-of-pocket costs for drugs covered under Medicare Part D (pharmacy drugs). Currently, Medicare out-of-pocket drug costs aren’t capped, but beneficiaries enter a “catastrophic coverage” phase once they have spent $7,050 on Part D medications. Under catastrophic coverage, beneficiaries pay 5% of drug costs out-of-pocket for the remainder of the year. For 2024, the new legislation drops out-of-pocket costs to zero when beneficiaries hit Part D catastrophic coverage. And starting in 2025, catastrophic coverage will no longer apply at all, since Part D drug costs paid by the patient will be capped at $2000 per year.

Tax Credits

The Inflation Reduction Act has other benefits as well. It will extend tax credits for those purchasing health insurance through Affordable Care Act (ACA) marketplaces. The enhanced credits were set to expire at the end of 2022 but will now continue through 2025. The expansion of tax credits for ACA plans was originally put in place by the American Rescue Plan Act of 2021, giving subsidies to those already eligible for them and were expanded to individuals making more than 400% of the federal poverty line for the first time. That temporary boost increased the amount of financial help available to people already eligible to buy subsidized health plans in the ACA Marketplaces, and expanded subsidies to more middle-income people, many of whom were previously priced out of coverage.

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