Title: Major Medicare Drug Price Relief Coming in 2025: What You Need to Know
Medicare beneficiaries in the U.S. who rely on many costly medications can look forward to significant relief in 2025. That’s when a new annual cap of $2,000 on out-of-pocket drug costs kicks in, thanks to the Inflation Reduction Act of 2022.
This cap is among the legislation’s most impactful measures aimed at lowering prescription drug prices for Medicare enrollees. The law also set a $35 monthly limit on insulin prescriptions and allowed Medicare to negotiate drug prices, among other provisions.
Previously, there was no cap on out-of-pocket costs for Medicare Part D drug plans. Enrollees had to pay 5% of drug costs in the catastrophic coverage phase, which began at $7,400 in out-of-pocket spending in 2023. The government and insurers covered the rest, with the government paying 80% and insurers 15%. For 2024, a provisional cap of about $3,500 was in place.
The new $2,000 cap offers peace of mind, ensuring that Medicare beneficiaries won’t be left empty-handed at the pharmacy due to high medication costs. "It’s reassuring to know that you’re not going to have to choose between affording your drug and affording other basic necessities," said Juliette Cubanski, deputy director of the Medicare Policy Program at KFF, a nonpartisan health policy organization.
More than 3 million enrollees who don’t receive low-income subsidies are expected to benefit from the cap, with that number rising to over 4 million by 2029. Around 40% of those reaching the cap between 2025 and 2029 are projected to save an estimated $1,000 or more annually.
By late June this year, over half a million enrollees had already reached the 2024 $3,500 cap, saving an average of around $1,800. The cap doesn’t apply to medications administered in doctors’ offices, such as certain chemotherapy treatments or infusions covered by Medicare Part B.
Another benefit of the law is that enrollees can spread their medication payments throughout the calendar year, which can be particularly helpful for those facing high drug costs early in the year. They may need to ask their insurer to enroll them in a payment plan or do so at the pharmacy, with the insurer billing them later.
However, awareness of the out-of-pocket limit provision is low. Only around a third of voters aged 65 and over, and a quarter of all voters, were aware of it, according to a KFF poll conducted in late August and early September 2024.
The revamped Medicare Part D drug plans led some independent insurers to propose significant premium increases. In response, the Biden administration is offering substantial new subsidies totaling around $5 billion next year to prevent those increases.
The Inflation Reduction Act also requires insurers to cover more of the costs once enrollees reach the catastrophic phase above the $2,000 cap. From January 2025, insurers will cover 60% of drug costs, with Medicare and drug manufacturers sharing the remaining 40% for brand-name drugs, and Medicare covering the full 40% for generics.
"The plans are assuming a larger portion of their enrollees’ prescription drug costs than before, when there was no out-of-pocket spending limit," said Cubanski. "So when the plan costs go up, that generally translates to higher premiums for the coverage."
The subsidy program doesn’t apply to drug coverage within Medicare Advantage plans, which offer broader health coverage and can more easily lower premium increases by adjusting other benefits or using other government funds.
Worth a look