What's new in Medicare for 2024

Biden's landmark legislation is starting to bring down prescription drug costs

With Medicare’s annual enrollment season underway, I thought it would be worth taking a minute to review what’s new in the program’s prescription drug benefit for 2024.

The Inflation Reduction Act of 2022 (IRA), signed into law by President Joe Biden, addresses some of the major flaws in Medicare’s prescription drug benefit. Congress passed legislation in 2003 to create the Part D prescription drug benefit, and it began covering seniors in 2006. It was a landmark expansion of Medicare coverage, but the legislation was controversial at the time, and for good reasons. Many objected to the confusing marketplace-based approach that we now struggle to tame. What’s more, the law forbids Medicare from leveraging its enormous buying power to negotiate drug prices with pharmaceutical companies. And it failed to cap enrollees’ annual out-of-pocket spending.

The lack of an out-of-pocket cap has become an important problem in the years since the law was enacted, as expensive, lifesaving drugs have become available for conditions such as cancer, diabetes, and heart disease.

Much of the media attention related to Medicare and the IRA has focused on an important provision that empowers the program to begin negotiating drug prices with pharmaceutical companies—a process that will play out over several years with uncertain results.

But other changes contained in the law are more immediate. This year, patient costs for insulin were capped at $35 a month, and there is no longer any cost-sharing for adult vaccines, such as the shingles vaccine. Meanwhile, the law places caps on total annual out-of-pocket drug spending in two steps:

• In 2024, enrollees who encounter high drug costs no longer will pay 5% of the cost of drugs when their total spending, with the value of manufacturer discounts on brand-name drugs, exceeds a threshold—$8,000 next year. KFF, a nonprofit organization focused on health policy. estimates that this will effectively act as an out-of-pocket cap of $3,300 next year.

• In 2025, an across-the-board $2,000 annual cap on out-of-pocket costs will take effect.

In my latest Morningstar column, I take a look at the ABCs of Medicare’s annual enrollment period - including a review of the changes in prescription drug coverage spurred by the IRA.

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