Understanding the Inflation Reduction Act

The Inflation Reduction Act (IRA) was signed into law in August 2022. It sets forth a plan to address health, tax and climate needs.

Part of it specifically targets prescription costs and other price issues facing Medicare users. The goal is to help mediate future prescription costs for Medicare users and to provide more affordable access to lifesaving medical interventions like insulin.

Today, we’ll be looking at how the Inflation Reduction Act will impact Medicare users in the next five years (and beyond) as the legislation is rolled out.  

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What to expect in 2023

Vaccines will be free for Medicare users

One of the biggest things from the Inflation Reduction Act to go into effect in 2023 is that many vaccines will be free starting in January. Vaccines recommended for adults by the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (ACIP) will become free for Medicare users.  

One that is particularly exciting is the inclusion of the shingles vaccine on this list. Shingles is a painful reactivation of the chicken pox virus, and anyone who has had chicken pox can get shingles.

The two-dose vaccine, which prevents the dormant virus from reactivating into shingles, currently costs hundreds of dollars. Its inclusion on this list means more people will have the ability to receive this vaccine and avoid the pain of shingles.  

Regulated insulin costs

Beginning in 2023 and extending through 2025, the copayment for a 30-day supply of Medicare Part D-covered insulin will be capped at $35.

This copay amount will be the same even if you have not met your Part D deductible. Insulin cost interventions will alter slightly starting in 2026. Insulin costs will either be $35 or 25% of the medication’s negotiated cost, whichever is lower.  

Insulin costs, which have skyrocketed in recent years, can be a huge financial burden for those with diabetes who need this lifesaving medication. This price cap will help more people afford their medicine and manage their blood sugar.

Including insulin costs as part of the Inflation Reduction Act was a key part in ensuring that Americans can have better access to this important medicine.  

Price hike penalties for pharmaceutical companies

A big part of the Inflation Reduction Act is the crackdown on pharmaceutical price hikes. This new legislation puts penalties into place for price increases that exceed the rate of general inflation.

Companies will have to pay Medicare a rebate for the amount their price hike goes above the inflation rate. This penalty applies to all Medicare sales of the drug as well, meaning that these penalties could cost companies a lot of money if they do not adhere to this new rule.

What to expect in 2024

Lower Part D out-of-pocket costs for catastrophic coverage

Part D plan members facing extremely high drug costs and entering the catastrophic phase of coverage will not face additional out-of-pocket costs for the rest for the year.

In 2022, the out-of-pocket threshold for this phase of coverage was $7,050, and that limit generally increased slightly each year. Until this new plan goes into effect in 2024, the 5% copay for catastrophic coverage will remain.  

Part D premium limitations

Starting in 2024 and extending through 2029, Part D plans cannot increase their premiums more than 6% per year. This is intended to help keep Part D plans affordable for more Americans.

After 2029, the Secretary of Health and Human Services will be the one to determine future premium growth limitations.  

Extra Help financial aid expansion

The government will be expanding their Extra Help program to assist seniors with limited incomes to afford their prescription drug costs.

The income threshold to qualify Medicare enrollees for the program will jump from 135% of the federal poverty level to 150%, which equals $20,385 for an individual in 2022.  

What to expect in 2025  

Part D out-of-pocket cap

This first-of-its kind limit will put a cap on the maximum amount people will have to spend out of pocket on their prescription drugs.

The out-of-pocket cap will be $2,000 per year and will be the same for those purchasing Part D coverage separately or getting their prescription coverage through a Medicare Advantage plan.

A new Part D payment option

In 2025, Part D enrollees will have the option of spreading out cost-sharing payments over the course of a year, which Medicare is calling “smoothed” cost sharing.

This is designed to help protect Part D enrollees from large drug bills hitting all at once that could discourage or prevent them from filling or taking prescribed medicines.  

What to expect in 2026 (and beyond!)

Price negotiations to lower drug costs

Beginning in 2026, consumers will begin to benefit from price negotiations for the first 10 prescription drugs under Part D that will be subject to negotiation. This is specifically for those drugs that have high costs and no alternatives. Biologics will fall into this category.  

Each following year, the number of drugs negotiated will increase:

• 10 in 2026
• 15 in 2027 and 2028
• Up to 20 drugs in 2029

This means that nearly 60 high-cost prescription drugs will have negotiated better prices for Medicare users by 2030. Part B drugs (those typically administered at a hospital or doctor’s office) will begin price negotiations in 2028.  

Conclusion

The Inflation Reduction Act is exciting legislation designed to help alleviate some of the burden of high prescription costs. In the next five years, new systems will be put in place to help make Part D prescriptions more affordable for seniors and to help regulate future drug costs. Understanding these and other Medicare changes can help you best plan for your health coverage needs.  

Medicare Allies is here to help you understand these and all other changes to Medicare coverage. We stay up to date on the latest Medicare rules and regulations to make sure you’re getting the most accurate information possible.

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