One of the biggest concerns for Medicare beneficiaries is their prescription drug costs. For some seniors, it’s the difference between life and death. Unfortunately, as inflation runs rampant across the nation, it’s getting harder for them to pay for their medications. Fortunately, this could be better with the changes in the Inflation Reduction Act of 2022.
The Democrats are touting this legislation as a huge win. The bill has passed the senate and the house on party-line votes. We’ll dig into the proposals of this bill that affect Medical costs and provide an objective view of the information.
Why are Drug Costs so High?
Prescription drug costs factor in the cost of making the medication and the high costs of providing the research to create the medicine. In 2003, Congress passed legislation to create the Part D prescription drug program. While the Part D prescription drug plans helped solve one problem, there are a few faulty parts.
The flaw that the new legislation aims to replace is the provision that forbids Medicare from negotiating prescription costs with drug manufacturers. It’s essential to have the ability to apply negotiated prices.
Negotiating costs can help lower prices and bring competition between drug companies. This is extremely important for high-cost drugs like insulin and biologics.
According to the Kaiser Family Foundation, Medicare beneficiaries spent an average of more than $6,000 on prescription medications in 2019. The reforms included in the legislation provide changes that should start affecting drug prices as of 2023. Below we’ll cover the timetable for when and what changes will occur.
Starting in 2023, the Inflation Reduction Act will have a provision that will cap certain insulins at $35 for a monthly supply. The price increase for beneficiaries has increased by over 75% since 2007. This cap on insulin is just one measure.
The inflation provision in the bill will penalize drug manufacturers that increase prices more than general inflation. This penalty will come in for rebates. In addition to the insulin cap and inflation penalties, Medicare beneficiaries will eliminate cost-sharing starting in 2023.
In 2024 the first phase of the out-of-pocket cap will begin. When a beneficiary reaches the catastrophic phase, beneficiaries are required to pay either a small copay or 5% of the cost of the medication, whichever is greater. In 2024 the Catastrophic threshold will be removed, thus lowering the drug costs for these beneficiaries.
Another change slated to occur in 2024 is expanding the Extra Help program. This program is also known as the Low-Income Subsidy program. It helps low-income beneficiaries with copays, coinsurance, and deductibles regarding their covered prescription drugs.
The second phase of the out-of-pocket cap will begin in 2025. This second phase will significantly impact the battle of prescription drug costs. It’ll limit the annual cost of Medicare beneficiaries to $2,000 for their prescription drugs. This is a much-needed removal of the coverage gap.
As of 2026, Medicare will start negotiating drug prices with a list of the 10 most expensive drugs covered by Medicare Part D. In 2027, it’ll extend the list to the 15 most costly drugs. After that, drugs will get added in 2028 and beyond.
How does the new U.S. healthcare bill affect the cost of Medicare prescription drugs?
We can expect lower costs for both brand-name drugs and generic drugs. However, with the new definition of negotiation, we can expect fewer new drugs to be brought to the market. This potential consequence is due to the risk of not accepting the rate set by Medicare and the threat of a 95% penalty tax or rebate.
While the Inflation Reduction Act will lower prices when using prescription drug coverage, there may be unintended consequences. This could result in fewer prescription drug options on the plan formularies.
We could also see less production and fewer new products from pharmaceutical manufacturers. Some drug makers may reject the new price negotiation and rebate threat and no longer participate with Medicare.
This could impact beneficiaries that need a particular drug if it’s only available from one company because they may not be able to use their Medicare prescription drug coverage to purchase the medicine. This would leave them at the mercy of paying the total price.
What are the recent and forecasted trends in prescription drug spending?
K.F.F. projects that the drug costs will continue to increase. However the Inflation Reduction Act should help to stabilize the prices. Since Medicare Part D started, the cost per prescription medication has increased by nearly 35%. With these new proposed changes to projection is only an increase of around 2% by 2026.
What are the arguments for and against Medicare negotiating drug prices?
We all know that healthcare expenditures are high and agree that something must happen to help lower the rising cost of prescription drugs. Congress is allowing the Centers for Medicare & Medicaid Services to negotiate prescription drug pricing.
Unfortunately, what the bill is proposing isn’t a negotiation. The way the law is written, Medicare can set the price, and if it’s not agreed upon, they can impose a crippling penalty. This will likely impact the research and development of new drugs since it will take longer and be more difficult for a company to recover the money it must spend on R&D.
What is the role of Medicare in the U.S. healthcare system?
Medicare is health insurance for Americans over 65 or under 65 with specific health conditions. Medicare is in place to make healthcare more affordable and accessible for retired people living on a fixed income.
What does the U.S. healthcare bill do to Medicare prescription drug costs?
In theory, the U.S. healthcare bill should lower the costs of prescription drugs but allow Medicare to negotiate prices. The cap scheduled to limit a beneficiaries drug costs to $2,000 will help many Medicare beneficiaries.
Only time will tell how the pharmaceutical companies will respond and if we’ll continue to see innovations in quality medications. It’s possible that while this will lower out-of-pocket spending, we may have monthly premiums going up to cover these measures.
If we see premium increases, you can expect these increases across all aspects of Medicare that provide a prescription drug benefit. This would include Medicare Part D prescription drug plans and Medicare Advantage plans.
What is the current situation with Medicare spending on prescription drugs?
Currently, the prescription costs for Medicare are very high. Many beneficiaries are paying high out-of-pocket costs and finding it harder to pay their bills and buy the medications needed to control their health conditions.
Is the U.S. healthcare bill a good thing for the country?
This bill could be good for seniors and those on Medicare struggling to pay for their Medication costs. However, it could be detrimental for new medications that treat conditions more efficiently. In addition, since Congress chose to combine this healthcare bill with the inflation bill, a ton of additional spending does not relate to healthcare costs.
Some argue that this spending could worsen inflation. If this holds, the healthcare provisions may not have the impact they should.
Getting Help On Medicare Prescription Drug Costs
No one knows what the future of Medicare prescription drug costs will be, but we can help you protect yourself from rising prices. Our licensed insurance agents can help you find a plan that covers your medications and pharmacies at the best price possible.
Enroll today, and let us help take the worry out of tomorrow’s health care expenses. Have questions?
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