Medicare recipients who take expensive prescriptions will get relief this year, thanks to a new cap on out-of-pocket drug expenses. This change aims to reduce spending for millions of older Americans in Medicare Part D, which covers pharmacy or mail-order prescriptions. However, the cap does not apply to drugs administered by doctors.
The cap is part of the Inflation Reduction Act, the 2022 federal climate and health care bill. Since it was approved by Congress, any changes to this cap would also require Congressional action. This new cap is expected to directly benefit seniors who previously spent thousands each year on costly drugs to treat conditions such as cancer or rheumatoid arthritis.
“There’s peace of mind that they won’t be bankrupted in order to get the medications they need,” said Juliette Cubanski, deputy director of the program on Medicare policy at KFF, a health policy nonprofit. Medicare, the federal health program for adults over 65 and the disabled, covers prescription drugs through Part D insurance plans. In prior years, these plans included a coverage gap, often requiring seniors to pay a substantial portion of their pharmacy bills once their total spending hit a certain threshold.
For example, five cancer drugs—Revlimid, Pomalyst, Imbruvica, Jakafi, and Ibrance—cost Medicare enrollees $11,000 to nearly $15,000 per drug in 2023. Furthermore, the coverage gap made payment amounts unpredictable, as Cubanski explained: “The structure of the benefit was somewhat confusing and also left people potentially on the hook for thousands of dollars in out-of-pocket costs.”
Starting January 1, 2023, the out-of-pocket cost cap has been reduced to $2,000 per year. Previously, consumers faced much higher costs, sometimes $10,000 or more annually, according to Leigh Purvis, prescription drug policy principal at AARP’s public policy institute.
“The fact that there’s now this $2,000 cap is a massive improvement for people,” Purvis said. AARP estimates that more than 3 million Medicare enrollees will save money on prescription drugs this year due to the cap. A KFF analysis of Part D claims in 2021 found that 1.5 million Medicare beneficiaries paid more than $2,000 in out-of-pocket costs.
California had the most individuals who would benefit, followed by Florida, Texas, New York, and Pennsylvania.
Medicare caps ease drug costs
Diana DiVito, 83, of North Strabane, Pennsylvania, has lived with chronic lymphocytic leukemia for about two decades.
She began taking Imbruvica nearly a decade ago, initially facing copays as high as $2,500. Over the first five years, she spent $56,000 out-of-pocket. This year, due to the cap, she paid $2,000 for her medication—covering her for the entire year.
“It’s great to know that I’m finished paying for the year,” DiVito said. “If people don’t take one of these expensive drugs, they don’t understand the impact of this cap. It’s a blessing.”
The Biden administration has said negotiated drug discounts will help offset the costs of the Inflation Reduction Act.
Discounts negotiated with pharmaceutical companies on 10 drugs prescribed for conditions like blood clots, cancer, heart disease, and diabetes will range from 38% to 79% when they take effect in 2026. These negotiations are expected to save Medicare $6 billion, according to federal estimates. Private insurance plans that contract with Medicare to cover prescription drugs will also absorb higher costs.
Medicare plans might manage rising costs by limiting the drug formularies or encouraging the use of less expensive alternatives, noted Jack Hoadley, a Georgetown University McCourt School of Public Policy research professor emeritus. Therefore, it’s essential for Medicare enrollees to review their drug plans annually, as formularies and coverage tiers can change. Drugs administered by doctors, such as those given by oncologists or rheumatologists, fall under Medicare Part B and are not covered by the cap.
While the $2,000 cap benefits those paying for chemotherapy pills, consumers might still face bills for doctor-administered chemotherapy infusions. Under Part B, Medicare covers 80% of these costs, with consumers paying 20%, unless they have supplemental coverage. The Inflation Reduction Act also capped Medicare recipients’ out-of-pocket insulin costs at $35 per dose, though this provision does not extend to Americans covered by private insurance plans.
Additionally, Medicare recipients will no longer pay out-of-pocket costs for recommended vaccines such as those for shingles, whooping cough, or tetanus.