Impact of the Inflation Reduction Act on Medicare

Impact of the Inflation Reduction Act on Medicare

Welcome to a clearer path through the Medicare maze. Having helped local seniors make Medicare coverage choices for many years now, I understand that navigating Medicare’s complexities can be overwhelming—especially with new changes in the law.

In 2022, the Inflation Reduction Act brought changes aimed at reducing costs and enhancing benefits for Medicare recipients. In this article, I’ll inform you about adjustments to Medicare Advantage and drug plan premiums in 2024, the new $2000 cap on drug expenses, and the closure of the Medicare Part D coverage gap, commonly known as the “donut hole.” These changes promise to transform the healthcare experiences of millions of Medicare enrollees. We’ll also look at how new rules on negotiating drug prices will benefit Medicare recipients, starting with the first 10 drugs in 2026.

Medicare Advantage and Drug Plan Premiums for 2024

One main goal of the Inflation Reduction Act is to keep premium increases in check. Beginning in 2024, the base premiums for Part D plans (Medicare’s prescription drug program) cannot rise more than 6% annually.

Medicare Advantage plans, which bundle Medicare Parts A and B (and usually Part D), are also affected by the new legislation. These are plans offered by private companies that contract with Medicare. The “Advantage” is that they offer additional services such as dental, vision, and hearing care.

From 2023, Medicare Advantage members have had to pay no more than $35 per month for a covered insulin product. And Medicare is also limiting cost-sharing (for Part B drugs that increase in price faster than inflation) to the cost under Original Medicare.

Although premiums are capped, some Advantage plans may increase in cost due to shifts in the cost burden from the government to drug and Medicare Advantage companies. We’ll take a closer look under Concerns for Increased Costs, below.

Yearly $2000 Cap on Drugs

One of the most important provisions of the Inflation Reduction Act is the new $2000/year out-of-pocket cap on prescription drugs. Starting in 2025, this cap is sure to be a great help for those who face high medication costs under Medicare Part D.

The cost cap is a relief for many who deal with chronic conditions such as diabetes, cancer, or heart disease. By capping Part D drug expenses, the Act ensures that more beneficiaries can afford their medications and avoid financial distress above the $2000 per calendar year limit.

The new system is also simpler. Under current rules, after spending a certain amount, beneficiaries enter different phases where they are responsible for a percentage of their medication prices. The new cap removes this phasing, as well as any copays or coinsurance for covered drugs for the rest of the year. Once you reach the $2,000 limit, that’s it!

For many seniors, high drug costs mean not being able to take medicines properly. By reducing the cost barriers, more people will be able to afford the proper dosage and adhere to their medication schedules more effectively

Elimination of the “Donut Hole”

The “donut hole” is a name for the coverage gap in Medicare Part D prescription drug plans. It has long been a confusing reality and a costly one for many seniors. Finally, the Inflation Reduction Act is making progress toward reducing this gap and eliminating it entirely as soon as 2025.  What could this mean for you?

In 2024, the coverage gap begins after you and your drug plan combined have spent $5,030 on covered drugs. This amount has changed each year. Once you enter the gap, you must pay 25% of your drug costs until you reach the catastrophic coverage threshold.

This year, the Inflation Reduction Act eliminates the 5% coinsurance paid by beneficiaries in the catastrophic coverage phase. This change means that once beneficiaries spend their 25% in the donut hole and reach the current out of pocket limit, they will no longer pay any percentage of their drug costs for the rest of the year.

In 2025, the “donut hole” will be closed, so there won’t be changing prices throughout the year for beneficiaries; however, the $2000/year out-of-pocket cap remains.

These changes reduce the financial burden associated with high medication costs, benefiting those who need expensive or multiple medications for chronic conditions.

The First 10 Drugs on Medicare’s List for 2026

For the first time, Medicare can negotiate prices with drug manufacturers for certain prescription medications. This historic change aims to reduce healthcare costs for millions of seniors.

While the specific list of the first 10 drugs has not been announced, the selection criteria include those drugs that account for the highest total spending by Medicare. This approach ensures that the focus is on drugs that could have the biggest impact in terms of cost savings. Negotiated prices will be announced and applied starting in 2026, making a starting lineup of drugs more affordable for Medicare recipients.

Lower drug prices not only mean more affordable care but also improved access to necessary medications—especially for those on fixed incomes or managing multiple health conditions.

As the process develops and more information becomes available about the drugs selected for price negotiation, you’ll be able to keep up with the latest on the website of the Centers for Medicare & Medicaid Services at CMS.gov.

Concerns for Increased Costs

While there are real benefits in the Inflation Reduction Act, concerns about cost increases remain.

Industry insiders suggest that, despite the 6% cap on premium increases mentioned at the beginning, Medicare recipients may see rising premiums, increased copays, and reductions in benefits next year. How could this happen?

This might occur because the Inflation Reduction Act shifts some of the cost burden from the government to drug and Medicare Advantage companies. Those companies, in turn, must adjust their plan structures to accommodate the increased costs.

For now, it’s wait and see. It is important for Medicare beneficiaries to keep alert about potential changes in cost, so they can plan effectively for their healthcare needs.

Conclusion

The Inflation Reduction Act represents a transformative shift in the landscape of Medicare, aiming to make healthcare more affordable and accessible for millions of American seniors.

As these changes unfold, Medicare beneficiaries and their families should stay informed.

I recommend consulting resources like the official Medicare website, the AARP Foundation, and, most importantly, engaging with knowledgeable insurance agents experienced in Medicare. With my experience working with Medicare beneficiaries, I’m well-equipped to address individual needs, answer your questions, and help you make the best decisions for you and your family.

Making Medicare Easy

As an independent insurance agent with Insurance Services, LLC, Allison Clayton offers unbiased advice. She has access to a range of plans and ensures her recommendations, whether for Medigap, Medicare Advantage, or Prescription drug plans, are objective.

Licensed with multiple insurance carriers, Allison can quickly compare rates, provide insights on rate histories, and share her experiences with different carriers’ customer service and online systems.

Allison’s main goal is to simplify Medicare. In her educational sessions, she explains how Original Medicare works and helps those nearing retirement. Once they’re enrolled in Original Medicare, Allison further assists by evaluating individual needs to recommend the best plan.

Visit Allison’s website at https://www.insuranceallison.com/. She can answer all your healthcare questions and keep you on the right track!