On Friday August 5 2022, The U.S. House of Representatives passed a comprehensive climate, tax, and healthcare bill. It includes significant measures to lower prescription drug prices within Medicare. This allows the government to negotiate drug prices and caps seniors' out-of pocket drug costs at up to $2,000 per year. President Biden will sign the Inflation Reduction Act of 20,22 which was passed by party lines in a 220-207 vote.
The Senate passed the package which also extends premium subsidies under the enhanced Affordable Care Act and expands and adds clean energy tax credits.
The bill will allow for the government to negotiate prices on certain medications, limit seniors' out of pocket spending on drugs at $2,000 per year, penalize drug manufacturers that raise their prices more than the Medicare inflation rate, and cap the Medicare beneficiary's out-of–pocket insulin cost at $35 per month.
The 2003 Part D drug program was established by legislation that was heavily influenced from the pharmaceutical industry. It prohibits the government from directly negotiating with pharmaceutical companies. Part D insurance companies can negotiate with each other, but not with the same bargaining power as the federal government. According to estimates by the Congressional Budget Office, allowing the government to negotiate directly will save approximately $100 billion over 2031.
Juliette Cubanski (deputy director, Program on Medicare Policy, Kaiser Family Foundation) stated that "the pharmaceutical industry has largely avoided this level of legislation"
Although the bill is a major policy change, its negotiating clauses will be gradually implemented over several years and will only affect a few medications. Experts say that the bill's greatest impact will be felt immediately by seniors with high prescription drug prices.
According to the Senior Citizens League, about one quarter of current Part D beneficiaries (or more than 16,000,000 people in 2022) are at risk of spending $2,000 per year on prescription drugs. Mary Johnson, the Senior Citizens League's Medicare and Social Security policy analyst, said that there are "some really expensive drugs." She helped a neighbor to research Part D plans several years ago before she became eligible for Medicare. The neighbor found that her co-pay for Humira (a drug used in rheumatoid joint pain) was about $1,000 per month. To afford treatment, the neighbor researched alternative therapies and pharmacy assistance programs.
Part D currently does not cap out-of-pocket drug costs. In 2022 beneficiaries will have to spend $7,050 on medications. Once they reach this point, they will be responsible for 5%.
Even these small payments can add up for patients who need expensive prescriptions such as those that treat multiple sclerosis, rheumatoid and cancer. A beneficiary might reach catastrophic coverage in August if they have a $1,000 monthly co-pay. The remaining five months of the year will be covered by $50, which is a total of $250. It's only a rough example, because Part D rules are more complex and older adults often take multiple medications.
In 2025, the $2,000 annual cap will take effect. It will be indexed to inflation. Anyone enrolled in Part D drug plans, including stand-alone or Medicare Advantage plans that cover drugs, is subject to the cap. This includes co-pays as well as deductibles and coinsurance, but does not include the monthly premium cost. In 2024, the beneficiary responsibility for catastrophic coverage will be reduced to zero.
Negotiations will begin in 2026 with a maximum of 10 drugs, rising to 15 drugs in 2027, 2028 and 2029, and then to 20 drugs in 2029. Negotiated drugs include Part D and Part A medications. This includes drugs that are administered in the doctor's office (e.g., infusions) and not taken at home.
The drugs subject to negotiation are still unknown. Drugs with generic equivalents would also be exempted from consideration. Eylea, which is a drug for macular damage from Regeneron Pharmas is one possible candidate, as well as Keytruda from Merck. According to Karen Andersen (Healthcare strategist at Morningstar), there are many other candidates.
Beginning in 2023, any drug maker who raises their prices at a higher rate than inflation will be subject to a Medicare program fine. In addition, Medicare beneficiaries will have a $35 per month limit on insulin, and will receive free vaccines under Part D.
The Inflation Reduction Act also lowers the premiums on health insurance for millions of Affordable Care Act participants through 2025. The Affordable Care Act's income caps were temporarily lifted by the American Rescue Plan of 2021, which capped silver-tier insurance's cost at 8.5% of the enrollees' annual income. Consumers who earned more than 400% of federal poverty, or $54,360 per person in 2022, were not eligible for government assistance to pay their premiums. The bill extends the premium subsidies to 2025.
View the original version of this article by Elizabeth O'Brien of Barron's here:
For assistance with any questions related to how these Medicare changes will affect your coverage, contact Ted Czabanowski now at: 401-885-7467.
Licensed Insurance Agent in Rhode Island