Inflation Reduction Act, Signed Into Law This Week, Aims To Lower Drug Costs for Medicare Patients

August 18, 2022


Elizabeth (Izzy) Montgomery, MPA
Policy Analyst

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On Tuesday, Aug. 16, President Joe Biden signed The Inflation Reduction Act into law. As we highlighted in a previous blog post, the act contains notable healthcare provisions, including the continuation of Affordable Care Act (ACA) monthly premium subsidies for plans purchased through the Health Insurance Marketplace. The bill also includes a new provision that will allow Medicare to negotiate drug prices for the first time and other significant prescription drug benefit changes aimed at lowering drug costs for Medicare enrollees.

Key provisions of the act include:

  • A requirement that pharmaceutical companies pay rebates to the federal government if drug prices exceed the rate of inflation, beginning in 2023. Rebates paid by pharmaceutical companies would go into the Medicare Supplementary Medical Insurance trust fund.
  • A monthly $35 cap on insulin co-payments for Medicare enrollees, beginning in 2023. As we previously highlighted, insulin prices have skyrocketed in recent years, including a 54% increase in the average cost of insulin prescriptions in Arkansas between 2013 and 2018.
  • Elimination of vaccine cost sharing, beginning in 2023, requiring Medicare and Medicaid/CHIP programs to cover all age-appropriate vaccines recommended by the CDC’s Advisory Committee on Immunization Practices. For example, the shingles vaccine is recommended for most older adults, but has been subject to cost-sharing requirements.
  • An annual cap on out-of-pocket drug costs. Medicare enrollees with Part D drug (Medicare’s prescription drug benefit) plans will have their yearly out-of-pocket drug costs capped at $2,000, beginning in 2025 — an important cost-saving measure for Medicare patients, many of whom face considerable expense for prescription medication. Indeed, a Kaiser Family Foundation analysis found that nearly 1 million Medicare enrollees incurred out-of-pocket costs exceeding $2,000 for their prescriptions in 2019.
  • Elimination of the 5% coinsurance requirement for Part D catastrophic coverage, beginning in 2024. Currently, Medicare beneficiaries are subject to a 5% coinsurance rate when they enter into catastrophic coverage (once a beneficiary has spent more than $7,000 in out-of-pocket costs for covered drugs). Because the $2,000 out-of-pocket cap goes into effect in 2025, this provision is only applicable to 2024.
  • Expanded full eligibility for the Part D low-income subsidy program up to 150% of the federal poverty level (FPL) beginning in 2024. Currently, full program eligibility is limited to those with incomes up to 135% FPL and partial eligibility is limited to those with incomes at 135-150% FPL. This change will also eliminate the partial eligibility benefit.
  • A requirement that the Secretary of Health and Human Services (HHS) negotiate drug prices with pharmaceutical companies, beginning in 2026. HHS will be charged with identifying the 100 costliest drugs for Medicare beneficiaries and choosing 10 of those to be subject to price negotiations in 2026, with additional drugs added over the next three years. While limited to Part D drugs in 2026 and 2027, Part B (Medicare’s outpatient service benefit) drugs will be included beginning in 2028.
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