Prescription drug costs will fall this year for more than a million people on Medicare
But few are aware of the changes made by the Inflation Reduction Act
It’s the best news that few people seem to know about: Prescription drug costs are falling this year for more than a million seniors — in many cases, by thousands of dollars.
The lower costs are the result of the Inflation Reduction Act (IRA), - one of the signature pieces of legislation championed by the Biden White House and signed into law in 2022, when Democrats still controlled both chambers of Congress.
The IRA is best known for its investment of more than $370 billion into climate and energy programs. But the changes it makes to Medicare Part D Part D, are significant. Yet a recent survey by the nonprofit KFF found that most Americans weren’t aware of them - and what’s really striking is how few people on Medicare know about the changes.
The changes began last year with a $35 monthly cap on the cost of insulin for diabetes patients, and free vaccines. This year, an annual out-of-pocket cap of $3,300 will take effect, because people covered under Part D are no longer required to pay 5 percent of the cost of brand-name drugs once they reach that level of spending. Another provision penalizes drug companies for price increases that exceed the rate of general inflation. The I.R.A. also expands eligibility for financial assistance with Part D costs for low-income seniors.
The law has also authorized Medicare to negotiate prices for expensive drugs with pharmaceutical companies for the first time. The first negotiations will be over 10 drugs, including the blood thinners Eliquis and Xarelto and the diabetes drugs Jardiance and Januvia.
The effect of those talks is uncertain, and they have already provoked litigation by drug makers.
The stronger vaccine coverage eliminates cost sharing for all of the many vaccines covered under Part D. Vaccines for Covid-19, the flu and some other conditions are covered under Part B (which covers doctors’ office visits). Some shots previously had high out-of-pocket costs. For example, patients paid an average of $77 in 2021 for the vaccine that prevents shingles, according to federal data.
In 2025, there will be two more important changes: A beneficiary’s total out-of-pocket spending will be capped at $2,000, and people will be able to spread their out-of-pocket costs throughout the year by setting up a monthly payment plan with their Part D insurance companies.
The new caps on out-of-pocket costs will save thousands of dollars for those who take high-cost drugs for conditions such as cancer and multiple sclerosis. In many cases, Medicare beneficiaries have been paying tens of thousands for their medicines. In 2020, 1.4 million people who didn’t receive a low-income subsidy had annual out-of-pocket costs of $2,000 or more, according to KFF, which focuses on health policy.
The stronger out-of-pocket protections arrive at a moment when other Medicare costs are rising. The standard Part B premium rose this year by 5.9 percent, to $174.70, and the deductible increased by $14, to $240.
Part D premiums are also rising. KFF estimated that Medicare recipients enrolled in stand-alone Part D plans who didn’t switch providers this year experienced premium increases averaging 21 percent, to $48 per month. (Medicare Advantage enrollees are unaffected since most do not pay a separate premium for drug coverage.)
The increase is due, in part, to the higher plan costs anticipated by insurers under the improved protections for patients contained in the I.R.A.
I explain how the changes will help people on Medicare this year in my Retiring column for The New York Times today.
By the way - Democrats had one other important Medicare reform in mind in 2021: add a standard Medicare benefit covering dental, vision and hearing care. We still need that to happen.
Social Security is taxable - don’t get caught off guard
Following up on a recent edition of the newsletter, I’ve got more on how Social Security benefits can be taxed in my latest Morningstar column.
The tax hits retirees with relatively higher incomes, which typically includes people who are still working or receiving a good deal of income from pensions or other retirement saving accounts. But the proportion of people who owe the tax has been rising over time—and that is by design.
Legislation has been proposed from time to time that would eliminate taxation of benefits. The current proposal, called You Earned, You Keep It Act, would repeal federal taxes on Social Security benefits and delay the looming insolvency of the program’s trust fund.
The revenue from this tax is credited to the trust fund. The bill proposes to replace it in two ways: 1) lift the cap on the amount of wages subject to payroll taxes and 2) inject general revenue into the trust fund.
Many Democratic reform plans for Social Security call for lifting or eliminating the payroll tax cap. But this is the first plan in memory that would use general revenue to pay for Social Security. The program has been entirely funded until now by dedicated revenue (the payroll tax), along with the income taxes collected on benefits and interest earned on trust fund reserves. And “general revenue” can just as easily be read as “borrowing,” considering that the federal government already operates with mammoth amounts of deficit spending.
The Social Security reform plan with the widest Democratic support is Social Security 2100, sponsored by Rep. John Larson (D-CT). Generally, it calls for modest expansion of benefits and extension of solvency by lifting the payroll tax cap. It would extend trust fund solvency by a few years.
The Larson plan would exempt more seniors from taxation of benefits by updated the threshold for taxation. Larson would tax benefits for single filers with $50,000 of income, and $100,000 for joint filers. Those figures would rely on the “combined income” definition that I lay out in the Morningstar column.
What I’m reading
Managed 401(k) accounts gain popularity, but may not be worth the extra fees . . . Biogen abandons Aduhelm, it’s controversial Alzheimer’s drug . . . WSJ tips for retirement tax breaks this season.
Thanks Mark, for the great news about the attempt to negotiate, and not mandate, price reductions for Rx meds! We need a balanced approach that provides Big Pharma with the resources to innovate and distribute, while at the same time endeavor to provide affordable pricing to millions who would otherwise not be able to afford.
Medicare and Medicare Advantage enrollees will pay for the changes in what they pay for prescription drugs when insurers raise their premiums and cut benefits for Medicare Advantage to cover the cost of the new MA and Medicare regulations.
Further, longer term, because the laws that allow Medicare to impose prices on makers of new and orphan drugs, fewer startups that normally would be created to develop new drugs will be funded by venture capitalists and other investors in their stocks.
Already, major pharmaceutical companies are cutting their capital expenditures and will be reducing their marketing and education budgets. That means fewer very sick people and their physicians will learn about newer and better drugs and benefit from them.
Price controls always have consequences that are not good for consumers, employers, workers or patients. We learned that during Nixon's price controls back in the early and mid 1970s. And we've learned that since Democrats and Reagan passed the 1983 price controls that have distorted health care markets ever since at the expense of patients.
Medicare needs major reforms. Medicare Advantage is being sold to save the government money by reducing access to the best car when seniors become very sick. Some reforms are being debated and enacted, but many more are needed.
The best reform would be to scrap Medicare Advantage because politicians and insurers are abusing seniors in their misleading promises that have caused more than half of Medicare beneficiaries to signup for it.
If you are in Medicare Advantage, you have less than 60 days to change insurers or to go back to regular Medicare. Do it Now.