What the New Inflation Reduction Act Means for Medicare

The Inflation Reduction Act of 2022 calls for a deficit reduction to invest in domestic energy production and manufacturing, reduce carbon emissions, and fight inflation. But, for our purposes today, we’re going to talk about the part that will greatly impact our clients - changes to the Medicare program. 

Future Medicare Part D Changes

The Medicare changes brought on by the Inflation Reduction Act all relate to prescription drug coverage. There are a number of them, and we’ll touch on each one today.

Extra Help

Extra Help is a federal program that offers Medicare beneficiaries financial assistance for prescription drug coverage. The benefits include:

• Payment of the Part D premium (up to the benchmark)
• Eliminated or reduced Part D deductible
• Caps on prescription copays ($1.35 on generics and $4 on name-brand)

If you have incurred a Part D late-enrollment penalty, it will also be waived if you receive Extra Help.

Right now, only individuals whose income is less than 135% of the Federal Poverty Level (FPL) are eligible to receive Extra Help. It also offers partial subsidies on a sliding scale for those who fall between 136-149% of the FPL. Starting in 2024, Medicare beneficiaries whose income falls below 150% of the FPL will qualify for Extra Help.

Vaccines

As of 2023, all vaccines that fall under Medicare Part D will have no cost-sharing, copayment, or deductible requirements. This is especially useful when it comes to the Shingles vaccine, as most beneficiaries had to pay several hundred dollars to receive it.

Drug Negotiation

Up until the signing of the Inflation Reduction Act, Medicare was not allowed to negotiate drug prices with pharmaceutical companies. That all changes starting in 2026. At that time, it will begin negotiating prices on the prescriptions that have cost the program (and beneficiaries) the most money. Medicare will negotiate the price of 10 drugs in 2026, 15 in 2027, 15 more in 2028, and 20 in 2029 and beyond. 

Drugs covered under Part D will see negotiations in 2026, and Part B drug negotiation will start taking place in 2028. There is no official list of medications that will be negotiated, but many companies predict drugs like Eliquis, Xarelto, Januvia, Xtandi, Myrbetriq, Orencia, and Imbruvica will be considered.

In addition to these negotiations, all Part D plans will be required to include negotiated drugs in their plan formularies. (A drug formulary is the list of medications covered by the plan.) This ensures all beneficiaries will have access to competitive pricing.

Cap on Out-of-Pocket Spending

Currently, there is no out-of-pocket spending limit for Part D. In 2025, out-of-pocket spending on Part D drugs will be limited to $2,000. Once you hit the spending cap, you will not owe any coinsurance or copayment amount for covered medications. The cap will increase in subsequent years based on Medicare’s annual spending. For example, if the Medicare program spends 4%, the cap will increase to $2,080 in 2026. 

Inflation-Capped Pricing

Next year (2023), drug manufacturers will be required to send rebates to the Medicare program if the prices for their drugs increase faster than the rate of inflation. In recent years (2019-2020), about half of all Medicare-approved drugs had price increases that were greater than inflation.

Catastrophic Coverage

Catastrophic coverage is the fourth phase of Part D coverage. It follows the Medicare coverage gap (also known as the donut hole), during which phase you are required to pay much more for your medications. Once you reach catastrophic coverage, your cost-sharing is reduced but still required.

Starting in 2024, you’ll have no cost-sharing responsibility during the catastrophic coverage phase. Because the out-of-pocket spending cap goes into effect in 2025, this part of the Inflation Reduction Act is really only relevant for 2024.

Premium Increases

Each year, the Centers for Medicare and Medicaid Services (CMS) sets the national base beneficiary premium for Part D plans. This base premium is what is used to calculate Part D penalties and to set plan premiums. (Premiums also vary by carrier, location, and plan.)

Beginning in 2024, the national base premium may not increase by more than 6% each year. The intention is that this will prevent Part D premiums from rising as quickly as they would have.

Insulin Caps

Last but not least, insulin prices will be capped at $35 starting in 2023. Until now, only select carriers and plans participated in the Insulin Savings Program, which limited insulin cost-sharing to $35 per refill. In 2023, all plans will include the $35 cap, and the deductible will not apply.

Don’t forget! It’s important to have your Part D plan reviewed every year during the Annual Enrollment Period, which starts on October 15. We are quickly approaching that time, so keep an eye out for your current plan’s Annual Notice of Change (ANOC) to find out how your plan might be changing in 2023.