Medicare Provisions of the Inflation Reduction Act of 2022

On Sunday, August 7, 2022, the Senate passed the Inflation Reduction Act of 2022. The Act contains several significant provisions affecting Medicare, which will take effect over various periods of time from 2023 to 2029. Here’s a summary of these key provisions. 

Prescription Drug Prices 

The Act enables Medicare to negotiate certain high-cost prescription drug prices covered by Parts B or D. Current law, which was enacted as part of the 2003 Medicare Modernization Act establishing Part D, prohibits price negotiations under Medicare. 

The Health & Human Services (HHS) Secretary is authorized to negotiate the prices of 10 prescription drugs in 2026, and another 15 drugs in 2027 and 2028. The number rises to 20 drugs a year in 2029 and beyond. This provision applies only to prescription drugs that have been on the market for several years without competition. 

It also includes a provision penalizing drug companies that increase prices for Medicare-covered prescription drugs in excess of the rate of inflation. According to the Kaiser Family Foundation, from 2019 to 2020, the prices of half of all drugs covered by Medicare increased above the rate of inflation during that period.  

Out-of-Pocket Drug Costs 

The Act limits out-of-pocket costs for prescription drugs for Medicare Part D beneficiaries to $2,000 in any one year, including an option to break that annual amount into monthly payments. Currently Part D’s catastrophic cost limits apply after beneficiaries spend $7,050 out-of-pocket. Beneficiaries then pay 5 percent of subsequent drug costs without limitation. Under the Act’s provision, once a Medicare beneficiary’s annual out-of-pocket expenses for covered drugs reach $2,000, co-insurance costs will be eliminated, as Medicare Part D will pay 20 percent of the cost of brand-name drugs and 40 percent of the cost of generic drugs. Insurers and drug manufacturers will bear the remaining costs. According to the Kaiser Family Foundation (KFF), 1.3 million Part D beneficiaries without low-income subsidies experienced out-of-pocket spending for drugs in 2020 and will benefit from this provision. KFF notes that “capping out-of-pocket drug spending under Medicare Part D would be especially helpful for beneficiaries who take high-priced drugs for conditions such as cancer or multiple sclerosis.”  

In addition to this annual cap, the Act creates a monthly cap of $35 on insulin costs under Part D. An estimated 3.3 million Medicare beneficiaries use some forms of insulin. 

It also includes a provision to further limit out-of-pocket drug costs for lower-income Medicare Part D beneficiaries and people with disabilities. This provision expands eligibility for Part D low-income subsidies to beneficiaries with incomes of up to 150 percent of the federal poverty level.  

Vaccines 

The Act makes certain vaccines free for Medicare Part D beneficiaries by eliminating any cost-sharing for such vaccines. According to KFF, 4.1 million Medicare beneficiaries received a vaccine covered by Part D in 2020, including 3.6 million who received shingles vaccines.  

Deficit Reduction 

According to the Congressional Budget Office (CBO), the drug provisions of the Act are projected to reduce the federal budget deficit by $288 billion over a decade (2022 through 2031). This includes an estimated $101.8 billion in Medicare savings as a result of the drug price negotiation provision. 

Next Steps  

The House of Representatives is scheduled to vote on this legislation later this week. 

The Academy’s COVID-19 Task Force Policy Translation Working Group 

The Policy Translation Working Group of the Academy’s COVID-19 Task Force continues to deliberate on the impact of the pandemic on social insurance and related programs. Its final report, which will include a section on Medicare, is expected to be released later this year. Stay tuned for more information.