Inflation Reduction Act limits out-of-pocket drug costs, caps insulin copays, makes vaccines free

For the first time in Medicare’s history, the amount of money that beneficiaries in drug plans will have to pay for their prescriptions each year will be capped, thanks to provisions of the Inflation Reduction Act of 2022. The new law makes other changes to the program’s Part D drug benefits, including putting a limit on out-of-pocket payments for insulin and making vital vaccines free.

“There was previously no limit on how much a person on Part D could have to pay in a given year,” says Nancy LeaMond, AARP’s executive vice president and chief advocacy and engagement officer. “And 1.3 million enrollees spent more than $2,000 in 2020.”

As with many of the other provisions in the new law, the changes to Part D out-of-pocket spending will roll out over the next several years. Here’s a look at how the new cost-sharing rules will work and when the savings will start.

Out-of-pocket costs capped

The big news for beneficiaries is that beginning in 2025, the maximum amount they will have to pay out of pocket for prescription drugs each year will be $2,000. Here are a few important details.

  • This out-of-pocket limit applies if you get your prescription drugs through a stand-alone Part D plan that people enrolled in original Medicare sign up for, or if you access your Medicare through a private Medicare Advantage plan. Most of those MA plans also cover prescription drugs.
  • The amount of the cap could change over time. If what Medicare Part D spends on prescription drugs per enrollee increases, that $2,000-a-year cap could also rise.
  • If your Part D or MA plan has a prescription drug deductible, that will count toward the cap. So if your deductible is $100, once you’ve met that, your out-of-pocket costs will be capped once you’ve spent another $1,900 that year. In 2022 the maximum deductible Medicare allows a Part D plan to charge is $480 a year. Many plans have lower deductibles or even no deductible.

In 2024, the year before the out-of-pocket cap takes effect, Medicare beneficiaries will no longer have any out-of-pocket costs once they enter what Medicare calls catastrophic coverage. The way catastrophic coverage works in 2022 is that once an enrollee’s out-of-pocket costs reach $7,050, they have to pay 5 percent of their prescription drug costs, with no limit. But beginning in 2024, that 5 percent coinsurance requirement will be gone and enrollees won’t have to pay anything for their prescription drugs for the rest of the year.

Another change to the Medicare drug benefit that begins in 2025 is the requirement that Part D plans offer enrollees the option of what is called smoothed cost-sharing. This means you can opt to have your out-of-pocket costs spread out over the year. This is designed to protect people from being hit with such a big drug bill at one time that it may discourage them from filling their prescriptions.

Premium increases limited

According to the new law, beginning in 2024 and continuing through 2029, Part D premiums cannot increase by more than 6 percent a year. In 2022 the national average Part D premium is $33.37 a month. The amount of these premiums varies widely, depending on where you live and what plan you select.

Insulin charges curbed

Beginning in 2023, copays for a 30-day supply of any insulin that a Medicare drug plan covers will be capped at $35. Note that Part D plans will be required to adhere to the $35 copay limit even if an enrollee has not met their annual deductible.

The price could be lower if insulin becomes subject to negotiation with drugmakers. Given that, although the monthly maximum copay will be $35 from 2023 to 2025, beginning in 2026 (the first year negotiated prices would take effect), insulin copays will be $35 or 25 percent of the drug’s negotiated price (whichever is less).

Many vaccines free

Starting on Jan. 1, 2023, Medicare enrollees won’t have any out-of-pocket costs for vaccines that the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices recommends for adults.

Medicare Part B, which applies to doctor visits, diagnostic tests and other outpatient services, already fully covers some vaccines, including flu shots, pneumonia vaccines, hepatitis B inoculations and coronavirus vaccines (initial shots as well as boosters).

But other vaccines, most notably the expensive vaccine for shingles, are covered under the Part D prescription drug plans, and many of those plans currently require enrollees to share the cost of those shots. The new law eliminates that cost-sharing.

Dena Bunis covers Medicare, health care, health policy and Congress. She also writes the “Medicare Made Easy” column for the AARP Bulletin. An award-winning journalist, Bunis spent decades working for metropolitan daily newspapers, including as Washington bureau chief for the Orange County Register and as a health policy and workplace writer for Newsday.