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8 Things You Need to Know About How the Inflation Reduction Act of 2022 Impacts Medicare Thumbnail

8 Things You Need to Know About How the Inflation Reduction Act of 2022 Impacts Medicare

On Tuesday, August 16, 2022, President Biden signed the landmark Inflation Reduction Act into law.   While much attention is on the climate portion of the law, the Medicare part has the potential to change the lives of American retirees – with potential savings of thousands of dollars a month.  Here are eight things you need to know:

1. For the First Time in History, Medicare Can Negotiate Prices

The law establishes a “Drug Price Negotiation Program” that seeks to lower the prices of high priced Medicare drugs without generic/biosimilar competition with respect to Medicare Parts B and D beneficiaries, starting in 2026.  

The negotiations will begin in 2023, and the new program will focus on the 100 drugs that Medicare recipients spend the most money on.  

The resulting savings will be for 10 drugs covered by Medicare Part D in 2026, then 15 in 2027, and then 20 in 2029.  Some Part B drugs (those administered by doctors and hospitals) will begin to be included in 2028.  The potential cost savings are huge — $101.8 billion, as estimated by the Congressional Budget Office — which could trickle down to retirees in the form of lower Medicare premiums.

2. Insulin Co-Pays Capped at $35/Month

For Americans, the price of insulin has been skyrocketing. According to the Mayo Clinic, the most common forms of insulin now cost 10 times more in the U.S. than in other developed countries.  Since the risk of diabetes increases with age, retirees are particularly vulnerable to these high costs.

Beginning in 2023, co-pays for a 30-day supply of any plan-covered insulin will be capped in Medicare Part D.  From 2023 to 2025, the maximum monthly co-pay will be $35 and for 2026 and after it will be $35 or 25% of the drug’s negotiated price, whichever is lower.

3. Free Vaccines

Aside from flu and COVID-19 shots, most vaccines in the U.S. are not free.  In fact, some can cost hundreds of dollars.  Starting on January 1, 2023, if you’re on Medicare, you will no longer have to pay any co-payment for a vaccine that is recommended for adults by the Advisory Committee on Immunization Practices (ACIP).

4. Drug Companies Held Accountable for Price Increases

Beginning in 2022, drug companies that increase the prices of their products faster than inflation must pay the higher-than-inflation amount back to the government. For example, if inflation were 6%, and a drug price increased by 8%, the drug company would have to pay the 2% difference for all Medicare sales of that drug back to the government.

5. Eliminate Beneficiary Cost Sharing in the Catastrophic Phase

Under the current Part D benefit, once your out-of-pocket costs reach $7,050 in 2022, you enter the “catastrophic” coverage phase – which still leaves you responsible for 5% of your prescription drugs.  In 2024, people with Part D coverage will no longer be responsible for any out-of-pocket costs once in catastrophic coverage.   

6. Part D Premiums Cannot Grow Faster Than 6% Per Year

 From 2024 through 2029, Medicare Part D premium increases will be capped at 6% per year.

7. $2,000 Cap on Out-of-Pocket Drug Charges in 2025

Another major cost saver for seniors: a $2,000 cap on how much Medicare recipients spend out of pocket on drugs per year, beginning in 2025.

Currently, there is no cap on what people can spend. The Kaiser Family Foundation estimates that 1.4 million people spend more than $2,000 out-of-pocket per year on medicine. For them, the spending cap could be life-changing.

8. Expands Premium And Co-Pay Assistance On Prescription Drugs For Low-Income Individuals. 

Currently, the low-income subsidy program (LIS) under Medicare Part D is fully available to all seniors earning less than 135% of the federal poverty level, and partially available to seniors earning less than 150% of the federal policy level.  The new law eliminates the partial subsidy status, giving those seniors the full low-income subsidy under Medicare Part D.


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Disclosure: This material is presented solely for information purposes and has been gathered from sources believed to be reliable, however, Pacific Asset Management cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. The preceding information is not intended to be tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Pacific Asset Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Pacific Asset Management unless a client service agreement is in place.
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