Most Medicare patients who reach the new $2,000 cap on out-of-pocket spending for prescription drugs may experience significant savings, as per a report released by AARP on Thursday. The report indicates that the cap could greatly benefit older adults in Medicare who struggle to afford expensive drugs for conditions like cancer and rheumatoid arthritis. These individuals, along with other U.S. patients, pay considerably more for prescription drugs compared to those in other developed countries.
The cap, which became effective at the start of this year, is a key provision in President Joe Biden’s 2022 Inflation Reduction Act aimed at reducing high drug costs. It includes a new $35 monthly cap on insulin and allows for Medicare drug price negotiations with manufacturers.
The report reveals that 94% of over 1 million Medicare Part D enrollees projected to hit the new cap in 2025 will see reduced out-of-pocket costs, saving an average of $2,474. This represents a 48% decrease in their total out-of-pocket expenses. The analysis, based on plan enrollment and premium data, among other factors, excludes Medicare beneficiaries receiving low-income subsidies and those in employer waiver plans.
Approximately 62% of these enrollees are expected to save over $1,000 in 2025, with 12% saving more than $5,000. The remaining 6% are anticipated to face higher out-of-pocket costs, averaging $268 in additional spending in 2025. Notably, in 33 states and Washington, D.C., it is estimated that 95% or more of Part D enrollees reaching the cap will have lower total out-of-pocket costs in 2025.
Leigh Purvis, AARP’s prescription drug policy principal, highlighted the significance of these savings for Medicare beneficiaries, especially those on fixed incomes. She mentioned that the median income of Medicare beneficiaries is approximately $36,000 annually.
Despite changes to Part D premiums in 2025, AARP noted that the savings are not impacted. Purvis clarified that the new prices resulting from Medicare negotiations for the first 10 medications will not take effect until 2026, leading to some premium increases. Critics attributing these premium hikes to the law were refuted by the report, which emphasized that the lower out-of-pocket costs for most patients reaching the $2,000 cap will outweigh any premium increases.
The report anticipates that the positive impact will grow further as new negotiated drug prices come into effect in 2026. A separate report by AARP predicts that 3.2 million Medicare recipients will benefit from the out-of-pocket cap in 2025, with an expected increase to 4.1 million enrollees by 2029.
Medicare, covering around 66 million individuals in the U.S., includes 50.5 million patients enrolled in Part D plans, according to 2023 data from the Kaiser Family Foundation. The new price cap applies to all prescription drugs under Medicare Part D, excluding drugs administered in hospitals or other healthcare settings like anesthesia and chemotherapy.
Previously, Medicare beneficiaries typically had to spend $7,000 or more out of pocket on prescription medications before qualifying for catastrophic coverage, where insurance covers most of the drug costs, with patients paying a small co-payment or a percentage of the drug’s cost, usually 5%.
