Medicare to cap out-of-pocket spending on Part D prescription drugs at $2,000

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A provision in the Inflation Reduction Act will implement a $2000 out-of-pocket cap on Medicare beneficiaries’ prescription drug spending, which could save money for more than one million enrollees when it takes effect next year.

Starting in 2025, Medicare beneficiaries will have their out-of-pocket spending on Part D prescription drugs capped at $2,000, as specified in the Inflation Reduction Act of 2022 (IRA). According to a new KFF analysis, more than one million beneficiaries could benefit from this change.

Among the numerous drug-related provisions in the IRA is a change to ensure that Medicare beneficiaries pay no more than $2,000 out of pocket for prescription drugs covered under Part D, which will take effect in 2025. It expands on a provision that went into effect at the start of this year: the elimination of 5% coinsurance in the catastrophic coverage phase of Part D coverage, which equates to a cap of about $3300 on brand-name drugs.

Ahead of this change, KFF analysts have estimated how many beneficiaries will be affected. They identified prescription claims data from 2021 (the most recent year available) for enrollees who were not receiving Part D low-income subsidies. That year, they found, 1.5 million beneficiaries spent $2,000 or more out of pocket on their prescription drugs, so they would have saved money if the spending cap had been in place. Of those 1.5 million enrollees, about one million (68%) spent between $2,000 and $3,000 out of pocket, 0.3 million (20%) spent $3,000 to $5,000, and 0.2 million (12%) spent $5,000 or more.

The pool of beneficiaries who could see financial relief from the new policy is greater than just those who would have benefited in 2021, the authors note. A total of 5 million Part D enrollees spent $2000 or more out of pocket on drugs in at least 1 year out of the decade 2012 and 2021, and that number grows to 6.8 million enrollees when extending the look-back period to 2007, the first full year of the Part D program.

“People who will be helped include those who have persistently high drug costs over multiple years and others who have high costs in one year but not over time,” the authors wrote. Most, however, are unaware of this potential help, with just 25% of American adults 65 years or older reporting knowledge of the out-of-pocket cap provision in a November 2023 KFF poll.

The analysis of enrollees who could stand to benefit from the out-of-pocket cap was published the same day that three pharmaceutical company executives appeared before the U.S. Senate Committee on Health, Education, Labor, and Pensions to discuss drug pricing amid the conversation surrounding another provision of the IRA, which authorizes Medicare to negotiate the prices of some costly medications.

Sen Bernie Sanders (I, Vermont), chairman of the committee, castigated the speakers over what he called “the corrupt political system” in which “the drug companies regulate the United States government,” as he drew attention to patient GoFundMe campaigns seeking assistance with drug costs and highlighted several drugs that are sold for far cheaper in other high-income countries.

Sen Bill Cassidy (R, Louisiana), the top Republican on the committee, argued that “the problem is far greater and more complex than individual companies” considering the nation’s incredibly complicated ecosystem of drug pricing and reimbursement.

The executives—Joaquin Duato of Johnson & Johnson, Robert Davis of Merck, and Chris Boerner of Bristol Byers Squibb—acknowledged the discrepancies in pricing for the same drugs when sold in the U.S. versus countries like Canada, but noted that patients in other countries face a much longer wait to access these therapies. They also contended that the complex system of passing rebates to pharmacy benefit managers drives the unaffordability of prescription drugs.