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Inflation Reduction Act Finally Allows Medicare to Negotiate Prescription Drug Prices

A Bill Years in the Making

On August 16, President Biden signed the Inflation Reduction Act (IRA) into law. A slimmed-down version of the previously rejected Build Back Better bill, the IRA is intended to bolster America’s safety net, with provisions affecting corporate taxes, the Affordable Care Act, and investments in clean energy. However, it also introduces a historic change in how Medicare interacts with prescription drug companies. This bill will allow Medicare to negotiate prescription drug prices for the first time ever, potentially saving American seniors hundreds, if not thousands, of dollars.

Can Medicare Negotiate Drug Prices?

We’ve covered this in the past, but since its inception in 2003, Medicare Part D has been at a major disadvantage compared to private insurers. Unlike nearly every other insurer in the country, Medicare could not negotiate drug prices. This meant they were required to pay whatever prices were stipulated by drug manufacturers, leading to greater expenditure of tax dollars and more out-of-pocket costs for consumers.

Big Changes to Medicare Prescription Drug Plans

Under the IRA, CMS can now negotiate Medicare drug prices for certain high-cost prescriptions. This does not come into effect immediately, however. Beginning in 2026, a limited number of drugs available under Medicare Part D will see lower prices, with that number expanding over the next four years. By the end of the decade, a total of 60 drugs available under both Part B and Part D will be eligible for negotiation, meaning a reduction in cost for the consumer. 

However, we won’t need to wait until 2026 to see changes. Starting in 2023, insulin prices will be capped at $35 a month. Currently, insulin prices are uncapped without insurance, leaving many diabetics without access to this potentially life-saving medication. An additional 2023 provision also requires drug manufacturers to issue rebates if drug prices rise faster than inflation. The IRA will also reduce the cost of certain adult vaccines available through Medicare, Medicaid, and CHIP.

Beginning in 2024, Medicare Part D premium increases will be capped at 6 percent per year, and the 5 percent coinsurance for catastrophic Part D coverage will be waived. In addition, the Part D low-income subsidy (Extra Help) will be expanded, allowing people at up to 150 percent of the federal poverty line to qualify. 

Finally, in 2025, Medicare Part D will receive an out-of-pocket maximum, meaning consumers are only obligated to pay up to $2,000 per year on copayments and deductibles. After that, insurers are required to cover 100 percent of fees. 

The IRA will also delay the implementation of the Trump administration’s controversial “rebate rule” until 2032. The delayed rule, which would make it illegal for pharmacy benefit managers to pass Medicare Part D rebates to insurers, has faced heavy scrutiny from critics, who claim that these rebates are used to reduce premiums, and that the bill would actually raise healthcare spending. The delay will allow Congress more time to determine how the rule will interact with the new system, in the hopes of avoiding a potentially messy implementation.

The IRA Faces Heavy Criticism

As with many new laws, the IRA was passed without bipartisan support: all 48 Senate Democrats, plus two Independent Senators, voted in favor of the bill, including Senators Joe Manchin (D-W.Va) and Kyrsten Sinema (D-AZ), who opposed similar legislation in the past. None of the Senate’s 50 Republican Senators voted in favor of the bill. A similar situation occurred in the House of Representatives, with the bill passing 220-207. 

An early study from the Penn Wharton Budget Model (PWBM), a nonpartisan research group, has found that the bill has a negligible effect on inflation, seemingly failing to achieve its stated purpose. However, also determined that the Medicare drug price reforms and other tax provisions in the IRA will reduce government debt and bolster private capital over the coming decades. Another study by the Congressional Budget Office estimates that the IRA will eliminate over $100 Billion in government debt.

How Does the IRA Affect You?

If you recieve your medication through a Medicare Part D prescription drug plan, you may begin seeing savings as early as 2023, though the law won’t come into full effect until 2030. Considering the bill’s lack of bipartisan support, changes in control of the House, Senate, or Presidency could see the bill repealed or otherwise modified before then. 

Until then, you can save on prescription medications in various ways, including by signing up for a Medicare Advantage plan. Call one of our licensed insurance agents at (800) 950-0608 or enter your zip code into our free search tool to begin comparing plans today.