Starting in January, seniors enrolled in Medicare will see a significant reduction in their out-of-pocket costs for prescription drugs. A new policy will cap these costs at $2,000 annually, providing substantial financial relief for many beneficiaries. Currently, Medicare beneficiaries may face high out-of-pocket expenses, particularly for costly medications.
The new cap is a key provision aimed at lowering prescription drug prices for Medicare enrollees. Previously, there was no limit on how much Medicare enrollees could spend on medications covered by their Part D drug plans, often leaving them to pay 5% of their drug costs once reaching the catastrophic coverage phase. In 2023, this phase began after they had spent $7,400 out-of-pocket.
Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, noted, “The cap offers some peace of mind that you won’t have to leave the pharmacy empty-handed because you can’t afford the cost of your drug.”
More than 3 million enrollees without Medicare’s low-income subsidy are expected to benefit from the $2,000 cap, with this figure projected to increase to over 4 million by 2029. Between 2025 and 2029, about 40% of beneficiaries who reach the cap will see estimated annual savings of $1,000 or more.
Medicare drug cost cap details
This significant change is part of broader reforms. The law also ensures no-cost vaccines for beneficiaries, caps insulin prescription costs, and mandates drug manufacturers to issue rebates to Medicare if their prices increase faster than inflation. Additionally, starting in January, enrollees will have the option to spread their drug payments over the calendar year, which could be particularly helpful for those with high early-year costs.
Despite these benefits, only about a third of voters aged 65 and older are aware of the new out-of-pocket cap, according to recent surveys. The restructuring of the Medicare Part D drug program has led some insurers to propose premium hikes due to their increased financial responsibility. Starting in January, insurers will cover 60% of drug costs once enrollees hit the catastrophic phase, with Medicare and drug manufacturers sharing the remaining costs.
To mitigate these premium increases, the Biden administration plans to offer subsidies totaling around $5 billion next year. The subsidy program doesn’t apply to drug coverage within Medicare Advantage plans, which can manage premium increases by adjusting other benefits or utilizing additional government funding. This initiative represents a significant step in ensuring that seniors can access and afford essential medications without the fear of prohibitive costs.