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The Inflation Reduction Act Includes These Important Medicare Changes

More than 63 million Americans​ are enrolled in Medicare.

Woman buys prescriptions at the pharmacy
The Inflation Reduction Act would allow Medicare to negotiate pricing on a select list of prescription drugs.
Getty Images

The passage of the Inflation Reduction Act, which President Joe Biden signed into law on Tuesday, has major implications for Americans on Medicare. 

Among other provisions, the 755-page legislation gives Medicare the power to negotiate prescription drug prices for the first time.  The number of medications is severely limited, though it's set to increase over the seven years. 

Signed into law by President Lyndon Johnson in 1965, Medicare is a federal health insurance program for people 65 or older and for individuals with certain disabilities. Currently, there are more than 63 million Americans on Medicare. 

How many medications can Medicare negotiate? What are the other changes to Medicare in the Inflation Reduction Act? Read on to find out. 

For more on health care, learn how to save on medical bills when you don't have insurance, how to enroll in the health care marketplace under the Affordable Care Act and how hearing aids will soon be available over the counter.

Medicare can negotiate prescription drug prices

To address the cost of prescription drugs, the law lets Medicare annually negotiate prices with pharmaceutical companies on 10 pricey medications, starting in 2026.

Fifteen more high-cost and high-use drugs will be added the following year, another 15 in 2028, and 20 more drugs would make the list in 2029.  

"Currently, our drug pricing system works for corporations and middlemen, not patients," Senate Democrats said in an Aug. 7 statement. "The new negotiation policy will ensure that patients with Medicare get the best deal possible on high-priced drugs and pay cost-sharing for those drugs based on the Medicare negotiated price."

Some 5 to 7 million Medicare beneficiaries could see their prescription drug costs go down because of the provision, according to the White House.

It also closes a "rogue Secretary" loophole that could have allowed a future administration to refuse to try to get the best prices for medications, according to Senate Democrats, "or negotiate fewer than the maximum number of drugs."

A senior looking at a bottle of pills

Prescription costs would be capped at $2,000 a year for seniors on Medicare Part D drug plans.

Jose Luis Pelaez/Getty Images

Annual drug costs for Medicare Part D enrollees is capped

In addition to negotiated drug prices, the Inflation Reduction Act caps out-of-pocket prescription drug costs at $2,000, starting in 2025, for those with Medicare Part D drug plans. It also adds an option to break that cap into monthly payments. 

"This is a huge policy change and one that has been a long time coming," Dr. Stacie Dusetzina, a professor of health policy at Vanderbilt University, told The New York Times. "For people needing high-cost drugs, this will provide significant financial relief."

The act also covers vaccines and sets a $35 cap on insulin for Medicare recipients, starting in 2023.

Health insurance bought on the Affordable Care Act marketplace is subsidized

Though it doesn't directly impact Medicare recipients, the Inflation Reduction Act also enhances and extends subsidies to private health insurance bought through the public marketplace.

These broader discounts were introduced in 2020 under the American Rescue Plan Act. Before then, the assistance was generally available only to households with income from 100% to 400% of the poverty level. The income cap will now continue to be (temporarily) lifted, so no one pays a premium that's more than 8.5% of their income.

In 2022, nearly 13 million Americans Americans buying health care on the marketplace were receiving subsidies, saving an average of $800 a year, according to the White House.   

In the 33 states that use HealthCare.gov, the federal insurance exchange site, premiums would be 53% higher on average this year if not for the extra ARPA subsidies, according to the Kaiser Family Foundation. The same would be true in states operating their own exchanges, the foundation said.

What health care benefits did the Inflation Reduction Act leave out?

Democrats didn't get everything they wanted in the bill: Prescription drug provisions were weakened after Senate Parliamentarian Elizabeth MacDonough ruled that efforts to tie prescription price increases to inflation rates went against the reconciliation process used to pass the bill with a simple majority, The Washington Post reported.

It also isn't clear yet which prescriptions the Secretary of Health and Human Services will be able to negotiate.

"The battle over which therapies should be chosen will also be a regulatory lobbying frenzy," Stat reported, "and drugmakers have until 2026 to bend the policy to their will."

And while an insulin price cap for Medicare users made the final version, Republicans stripped one for people with private insurance.

What have been criticisms of the Inflation Reduction Act's health care provisions? 

A group of Republican physicians in Congress said they were "deeply concerned" about the prescription drug caps in the Senate bill.

In a letter Monday to Senate Majority Leader Charles Schumer and House Speaker Nancy Pelosi, the GOP Doctors Caucus wrote that pricing controls could limit resources, stymie research and cause a significant drop in provider reimbursement.

Warning that "government price controls have consequences," the caucus called for a bipartisan plan to lower drug costs "without sacrificing the cures and treatments that will provide for a healthier future."

The letter was signed by Republican lawmakers including Sens. Bill Cassidy of Louisiana, a hepatologist; John Barrasso of Wyoming, a former orthopedic surgeon; and Rand Paul of Kentucky, a former ophthalmologist; as well as Reps. Scott DesJarlais of Tennessee, a general practitioner; Andy Harris of Maryland, an anesthesiologist; and Mariannette Miller-Meeks of Iowa, a former ophthalmologist. 

The Pharmaceutical Research and Manufacturers of America, a leading pharmaceutical lobbying group, also opposed the plan, saying it allows the government to set prices, not just negotiate them.   

The provisions in the Inflation Reduction Act "threaten patient access and future innovations," PhRMA spokesperson Debra DeShong said in a statement.

For more on the Inflation Reduction Act, learn how the new law could save you thousands of dollars on home energy costs.

The information contained in this article is for educational and informational purposes only and is not intended as health or medical advice. Always consult a physician or other qualified health provider regarding any questions you may have about a medical condition or health objectives.