Most Medicare patients who met the new $2,000 limit on out-of-pocket costs for prescription drugs could see massive savings, despite the premium changes, according to a report released Thursday by AARP.
The findings suggest the cap could be a big benefit for older adults on Medicare who struggle to pay for high-cost medications for cancer, rheumatoid arthritis and other serious conditions. Those seniors and other American patients pay two to three times more for prescription drugs than people in other developed countries.
The limit went into effect earlier this year. It is one of the most important provisions of President Joe Biden's Inflation Reduction Act of 2022, designed to reduce high drug costs, along with a new $35 monthly cap on insulin and prescription drug price negotiations. Medicare with manufacturers.
The report found that 94% of the more than 1 million Medicare Part D enrollees expected to reach the new limit in 2025 will have lower out-of-pocket costs, including premiums and cost-sharing, and save an average of $2,474. That's a 48% decrease on average in their total out-of-pocket costs, according to the report, which analyzed plan enrollment and premium data, among other information.
That 1 million figure excludes Medicare beneficiaries who receive a certain low-income subsidy and those in employer waiver plans.
It is estimated that 62% of those million enrollees will save an average of more than $1,000 in 2025, while 12% will save more than $5,000, according to the report. The remaining 6% of Part D enrollees projected to meet the new limit are expected to have higher out-of-pocket costs, averaging $268 in additional expenses in 2025, according to the report.
In particular, the proportion of Part D enrollees expected to meet the limit and have lower total out-of-pocket costs in 2025 is estimated to be 95% or higher in 33 states and Washington, DC.
“When you can provide these types of savings, that frees up those funds for other really important things that maybe [patients] “We had to make concessions to pay for food or rent,” Leigh Purvis, director of prescription drug policy at AARP, said in an interview. “It's a really significant impact, especially for a population that has a fixed income.”
He added that the median income for Medicare beneficiaries is about $36,000 a year.
Those savings come despite changes to Part D premiums in 2025, AARP said. Purvis said the new prices for the first 10 drugs selected for Medicare negotiations (and the lower costs expected from them) won't take effect until 2026, so premiums have increased in some cases.
He said critics have been trying to blame the law for those premium increases and higher costs for Medicare enrollees overall. But the report says lower out-of-pocket costs for most patients who meet the $2,000 limit will more than offset the higher premiums.
The positive effect “will only increase” as new negotiated prices for the first round of drugs come into effect in 2026, according to the report.
“The Medicare program is going to save a lot of money, so this is really a much bigger story than it seems, simply because these savings are going to a lot of different people in a lot of different ways,” Purvis said.
A separate AARP report found that 3.2 million Medicare beneficiaries are expected to see savings from the out-of-pocket limit in 2025. By 2029, the number is expected to increase to 4.1 million enrollees.
Medicare covers about 66 million people in the U.S. and 50.5 million patients are enrolled in Part D plans, according to 2023 data from health policy research organization KFF.
The new price cap applies to all drugs prescribed under Medicare Part D, but does not include drugs administered to patients in the hospital or other health care settings, such as anesthesia and chemotherapy.
Before the change, people with Medicare typically had to spend $7,000 or more out of pocket on prescription drugs before qualifying for so-called “catastrophic coverage,” when insurance kicks in and covers most of the cost of the drug.
Under this coverage, patients are charged a small copayment or a percentage of the cost of a drug, usually 5%.
