Your Medicare Drug Provisions Under the Inflation Reduction Act

Medicare beneficiaries are affected by several provisions in the reconciliation bill (also known as the Inflation Reduction Act)  passed by Congress. Republicans and Democrats have expressed opposing views on the legislation’s impact on seniors. 

According to Senate Majority Leader Chuck Schumer, the price of prescription drugs will decrease. Senate Minority Leader Mitch McConnell criticized aspects of the bill dealing with drug price negotiations, claiming it would lead to fewer new drugs and treatments being developed as companies cut back on research and development.

As a result of the reconciliation bill, at least some Medicare beneficiaries will see lower prescription costs in Part D, Medicare’s prescription drug program, and in Part B, Medicare’s office-based prescription drug plan, as follows:

  • Ten medications will be negotiated in 2026, with 20 in 2029.
  • Prescription drug costs for seniors will be capped at $2,000 yearly.
  • Drug companies must provide rebates if drug prices increase faster than inflation.
  • Increasing eligibility for prescription drug benefits under the Part D low-income subsidy program.
  • Limiting insulin copays to $35 per month.
  • Providing vaccines free of charge with no out-of-pocket expenses.
  • Keeping premium increases to a minimum.

The pharmaceutical industry has long opposed attempts to enact such a plan, and Republicans, like McConnell, have focused on the price negotiation aspect. McConnell claims that more than 100 “major new medicines” will not be introduced over ten years because of the legislation. Still, the Congressional Budget Office estimates just two fewer drugs will be introduced. Over the next ten years, the CBO estimated that an earlier version of the Medicare prescription drug provisions would save $287.6 billion.

Benefits to beneficiaries

The program would benefit seniors who spend more than $2,000 a year on prescriptions. Based on 2020 enrollee data, Kaiser Family Foundation estimates that that provision could affect more than 1.4 million beneficiaries. Seniors who pay more than $7,050 for Part D drugs enter what’s called the “catastrophic” phase – they must pay 5% of their drug costs after that. 

Over 1.3 million seniors would benefit from eliminating the 5% copay in 2024 before the $2,000 out-of-pocket cap takes effect under the Inflation Reduction Act. As a cost-benefit, the out-of-pocket cap may be the easiest to understand. According to Rachel Sachs, a professor at Washington University in St. Louis’ School of Law, the bill protects seniors in several ways. From 2024 to 2029, Part D premiums will be limited to 6% per year. 

In addition, Sachs cited a provision that allows seniors on fixed incomes to spread out the cost of their drugs over the year. Millions could also be affected by the insulin copay cap. As of 2020, 3.3 million Medicare Part D enrollees used insulin, with an average out-of-pocket expense of $54 per prescription. Certain Part D plans launched a program in 2021 that capped insulin copays at $35 for some enrollees. All plans would be required to cap all insulin products at that price under the reconciliation bill.

Low-income subsidy beneficiaries who receive partial benefits under Medicare may be eligible for full benefits if their eligibility is expanded. Those with low incomes and assets are eligible for the program, which pays Part D premiums and cost-sharing. Currently, partial benefits are only available to those whose income falls between 135% and 150% of poverty; the Inflation Reduction Act would grant full benefits to this group. 

The bill would also benefit seniors who are unable to afford medicines now. In addition, reducing out-of-pocket costs will increase prescription drug use, Boston University economist Rena Conti predicts. If people can’t access drugs, they won’t work. The fundamental problem is that Seniors can’t afford drugs right now; this bill tries to address it.

Additionally, the legislation repeals a Trump administration drug rebate rule that was delayed until 2027 and had not yet taken effect. In Medicare Part D, the rule would have prohibited manufacturers from negotiating rebates with health plan sponsors or pharmacy benefit managers.

Price Negotiation

Price negotiation benefits for seniors are harder to predict since they depend on which drugs are affected. It was unclear how many seniors could directly benefit from the provision in KFF’s late July analysis. 

Currently, the federal government cannot negotiate Medicare drug prices with manufacturers, and many Part D plans are privately run and negotiated independently. To reduce high medication costs, many politicians have long called for letting the government negotiate drug prices.

According to the Inflation Reduction Act, the Health and Human Services department must negotiate prices for high-cost drugs without generic or biosimilar competition. Drugs subject to the negotiation must also have been on the market for a while: small molecule drugs for nine years, biologics for thirteen years. A total of ten Part D drugs could be negotiated in 2026, rising to 15 the following year. Part B drugs (drugs administered in a doctor’s office) will be included in 2028, with 20 drugs able to be negotiated by 2029 and beyond.

Over the next ten years, the CBO estimates that this provision will save Medicare about $100 billion. According to Sachs, it was designed to make sure companies could recoup their investments in drug development by limiting negotiations to drugs that had been on the market for nine or 13 years.

Some critics say that Medicare drug negotiations would negatively affect pharmaceutical companies’ revenues, resulting in less research and development dollars being invested and fewer new products being introduced to the market. McConnell cited a BIO study when he said that 104 of 110 major new medicines released in the past decade may not have been available to the public if the drug negotiation plan had been in place. An analysis by Vital Transformation projects a 55% revenue reduction for 12 firms by 2024 compared with 2024 net earnings, and only 6 of 110 approved therapies would be considered ‘not at risk of cancellation.” The study was conducted based on the negotiation provisions of the Build Back Better legislation, which are similar to the Inflation Reduction Act.

Because of the legislation, 15 fewer drugs out of 1,300 will be introduced over the next 30 years, according to the CBO. Conti advised that the CBO should focus on the 10-year estimate since 30-year estimates are highly uncertain. According to the CBO, two fewer drugs will be introduced over the next decade.

The BIO-funded report compared the U.S. proposal with EU policies on drug negotiations, which Conti criticized. As the industry-funded study did, the CBO also estimated all prescription drug provisions, not just the drug negotiation provision, stating it’s not evident that negotiation will do much.

Conti noted that the CBO analysis does not consider the quality of the two drugs that might be lost in the next decade. The Food and Drug Administration approves 30 to 50 drugs yearly. In most cases, the changes are not transformative but rather tweaks to existing products.

According to the CBO, the negotiation and inflation-rebate provisions of the bill would lead to higher launch prices of new drugs. These price-constraint measures would result in higher starting prices for drug companies. According to the CBO, inflation-rebate programs, which apply a year after drug launches, will be the primary driver of price.