The Inflation Reduction Act, which President Biden signed in August, contains provisions that should ease the financial burdens faced by some beneficiaries of Medicare. The changes matter because health care is often among the highest ongoing expenses for retirees. Let’s take a look at some of the key Medicare provisions in the new law.
Capping Prescription Costs
Perhaps the most impactful element of the new law is a limit on seniors’ out-of-pocket spending for prescription medications. Starting in 2025, enrollees will pay no more than $2,000 per year, an amount that is designed to rise in tandem with inflation. Until 2025, beneficiaries can spend as much as $7,050 per year on medications before getting relief; even then, they remain responsible for 5% of costs. The $2,000 cap includes co-pays, deductibles and co-insurance but does not include the cost of monthly premiums.
Starting next year, Medicare recipients’ out-of-pocket spending on insulin will be capped for the first time, at $35 a month. That provision, too, is likely to affect millions of individuals: The number of Medicare Part D enrollees using insulin doubled between 2007 and 2020 to 3.3 million, according to the Kaiser Family Foundation.1 Part D beneficiaries spent more than $1 billion out of pocket for insulin in 2020, according to the organization.
Controlling Drug Costs
The Inflation Reduction Act allows the government, for the first time, to negotiate prices with pharmaceutical companies for a limited number of the most expensive medications. Starting in 2026, Medicare will be able to negotiate the prices of 10 drugs; that number will rise to 20 by 2029. The provision is expected to save the government more than $100 billion by 2031.2
Another provision, effective this year, requires drug companies to provide rebates to Medicare if the prices of their medications rise faster than overall inflation. Together, these provisions are expected to save the government about $250 billion over 10 years3 and, experts say, may modestly lower premiums and out-of-pocket costs for Medicare beneficiaries.
Reining in Part D Premium Inflation
Other provisions in the new law starting next year should help as well, including one that does away with out-of-pocket costs for vaccines; that change would have saved money for 4.1 million people in 2020.4
The weight of Medicare expenses, and thus the relief that will be afforded by the new law, will vary from household to household. But Medicare can still be a key element in most retirees’ financial plans. Your wealth advisor can help you learn more.
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