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A Prescription for Medicare Drug Cost Predictability

For the millions of seniors who struggle to stretch their fixed incomes around rising out-of-pocket drug costs, Washington, D.C. delivered great news.

The health-related section of the Inflation Reduction Act includes several provisions to lower seniors’ out-of-pocket spending on prescription drugs. The bill was signed by President Biden on August 16. Among the impending changes:

  • A Part D out-of-pocket cap. By 2025, the maximum amount Medicare beneficiaries could pay out of pocket for Part D prescription drugs annually is $2,000. Part D covers medications taken at home, as opposed to those administered by a health care provider in a doctor’s office or infusion center, which are covered under Part B.
  • An optional payment plan. Seniors will be given the option of paying their share of cost in 12 monthly installments, a process known as smoothing. This is in lieu of a large, one-time payment and provides seniors predictability about their out-of-pocket drug costs.
  • An elimination of the coverage gap. In Medicare, the phase between initial coverage and catastrophic coverage, called the “donut hole,” has long been a source of frustration. Brand name and generic drugs are covered differently during the phase, which leads to confusion and unpredictable cost sharing. The gap will be gone as of 2025.

Improving Access by Addressing Affordability

Lowering the out-of-pocket cap is going to be “life-changing for a lot of patients and their families.” More than 5 million Medicare beneficiaries struggle to afford prescription medications, according to the federal National Health Interview Survey. The survey also found drug affordability was more challenging for patients who were Black, Latino or women. Additionally, “people with lower incomes and beneficiaries diagnosed with chronic conditions such as diabetes had higher rates of having affordability problems with prescriptions than other groups.”

Capping out-of-pocket costs will be especially helpful for people who take high-priced, innovative drugs for conditions such as cancer or multiple sclerosis. A single prescription can run several thousand dollars. For patients who take multiple drugs, the costs can add up quickly. While the new law won’t completely eliminate the challenge that is paying for prescription drugs, it should give millions of seniors greater predictability and improved access to the medications they need.

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