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By Mary Helen Gillespie

Starting next year, Medicare recipients will begin to see a series of cost reductions in certain prescription drug prices as a result of the sweeping and politically divisive measure President Biden signed into law Tuesday.

The Inflation Reduction Act which targets climate, health, and tax reform, is seen as a giant victory by Biden and other Democrats as the crucial midterms approach. No Republican from either chamber voted for $750 billion act last week, saying it will cause inflation to rise and be ineffective.

The president signed the law with the usual pomp and circumstance in the White House State Dining Room. He and party leaders plan a massive cross-country road show after Labor Day targeting Senate and congressional districts in danger of flipping to the GOP during the November elections.

“Seniors are going to pay less for prescription charges. This is a Godsend to many families and so, so overdue,” said the president, adding that it was “one of the most significant laws in our history. The American people won.”

Here’s the impact on Medicare programs, primarily focusing on drug costs.

  • Americans with Medicare Part D and Medicare Advantage prescription plans will have out-of-pocket drug costs capped at $2,000 per year beginning in 2025. 
  • 3.3 million Medicare beneficiaries with diabetes will benefit from a guarantee that their insulin costs will be capped at $35 for a month’s supply beginning next year. 
  • As many as seven million Medicare beneficiaries could see their prescription drug costs go down because of the provision finally allowing Medicare to negotiate prescription costs with the pharmaceutical companies beginning in 2026. The schedule doesn’t include the entire formulary. It starts with 10 drugs, then 15 and then 20, over time. 
  • In addition, the Kaiser Family Foundation reports that four million Medicare beneficiaries each year will no longer pony up for co-pays for adult vaccines – such as pneumonia, flu and shingles -- covered under Medicare Part D.

“We know that people forgo needed medicines because of costs, including people with serious conditions like cancer. Having a hard cap on out-of-pocket spending will give people on Medicare the ability to budget for their medications and have some peace of mind knowing they will not have to spend unlimited amounts for drugs prescribed by their doctors,” said the foundation’s Tricia Neuman, Sc.D., senior vice president and executive director of the Program on Medicare Policy. “Capping costs should make it easier for patients to take medicines as prescribed, rather than skip doses or not fill a prescription due to costs.”

While the insulin aspect has garnered a great deal of immediate positive response from patients and providers, the $2,000 cap is seen by many experts as having the greatest impact on Medicare recipients who may now find they are paying thousands and thousands of dollars for life-saving prescriptions for cancer and other critical medical conditions.

Jae W. Oh, MBA, CFP®, CLU® ChFC® is the managing principal of GH2 Benefits LLC. Oh, the author of Maximize Your Medicare, said the $2,000 cap will dramatically change the financial landscape for all Medicare recipients.

“The elimination of the catastrophic stage is a clear win,’’ Oh said. Costs that could be widely variable year-to-year are now very certain. Seniors “living check-to-check on Social Security will be able to plan. People will accept it with open arms.”

Sudipto Banerjee, PhD, vice president of retirement thought leadership at T. Rowe Price, agreed the $2,000 cap will have the greatest impact on seniors’ prescription budgets. But he noted that data doesn’t show what the exact size of that population is among all Medicare enrollees.

He is the author of a recent T. Rowe Price study that addresses health-care costs in retirement, which states some studies predict that a 65‑year‑old couple may need up to $360,000 to cover these bills. But these estimates don’t provide an accurate picture of what most retirees will encounter in their future health concerns.

That’s because, Banerjee said, that while the new law will lower Medicare costs, it ignores the greatest potential costs elders face when planning retirement: long-term care. “This new legislation doesn’t address the risk of high long-term care expenses,’’ Banerjee said. “We need to make retirees aware of this.”

Regarding planning for health-care retirement costs, the study recommends:

  • Calculating premiums based on the type of coverage and budgeting for that amount in the fixed monthly income.
  • Keeping enough liquid cash to meet out‑of‑pocket expenses.

It is a bit murky as to what impact the Medicare reforms will have on the costs of premiums for seniors, The Kaiser Family Foundation’s Neuman said.

“It’s not entirely clear how the law will affect Medicare Part D premiums. Some of the provisions increase Medicare Part D spending while others reduce spending,” Neuman said. “The law includes a provision that caps Part D premium increases to no more than 6% annually, essentially putting a lid on potential increases between 2024 and 2030.”