Inflation Reduction Act Changes That Reduce Medication Costs in 2023 & Beyond

Several provisions to lower prescription drug costs for people with Medicare and reduce governmental drug spending are included in the Inflation Reduction Act of 2022, signed into law by President Biden in August.  This milestone legislation has evolved with strong bipartisan and public support for the government to address high and rising drug prices. 

The Act’s provisions, which include new regulations for corporate tax reform, energy, and environmental policy, are expected to reduce the federal deficit by an estimated $237 billion over the next 10 years, with a major impact on healthcare and prescription drug costs for the Centers for Medicare & Medicaid Services (CMS) as well as Medicare recipients.  

The prescription drug provisions aim to lower costs through several mechanisms:

Cap out-of-pocket costs for Medicare recipients. Beginning in 2025, the annual out-of-pocket maximum for Medicare recipients will be $2,000, with annual adjustments after that. Annual premium increases are also capped at 6%. To put  this in perspective, in 2020 approximately 1.4 million Medicare recipients incurred out-of-pocket drug costs exceeding $2,000. 

Limit monthly insulin co-payments to $35 per month. Beginning in 2023, out-of-pocket costs for insulin products will be capped at $35. In 2026, the cap will be $35 or 25% of the government’s negotiated price, whichever is less. The Act also waives the deductible for insulin covered through DME services. Although many Medicare Part D plans have already placed insulin products in the preferred drug tier of their formularies, co-insurance costs in the coverage gap (“doughnut hole”) have often amounted to $100 or more per month. 

Allow Medicare to negotiate prices for prescription drugs. Beginning in 2026, CMS will be required to negotiate maximum prices for high-cost drugs, including brand-name drugs with no generic equivalents. CMS must negotiate the price of 10 drugs in 2026, increasing to 20 drugs in 2029 and thereafter. The drugs that CMS selects for negotiation must have prior market approval for at least seven years (11 years for biologic drugs). 

Require mandatory rebates. Manufacturers must issue rebates to CMS for brand-only drugs for which prices rise faster than the rate of inflation. 

Eliminate cost sharing for adult vaccines. The Act will eliminate patients’ out-of-pocket costs for all adult vaccines.

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