Changes to Medicare Drug Prices Will Soon Benefit Seniors

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High drug prices can be a problem for every American whose health condition requires medication. However, older people are disproportionately affected by high drug prices. While about half of all Americans between the ages of 30 and 49 report taking prescription medications, 89% of Americans who have reached the age of 65 use prescription drugs.

At the same time, older Americans often lack the financial resources to pay for drugs, even when they have insurance that covers part of the cost. Of those who reported taking prescription drugs, 23% of seniors said they had difficulty affording the cost of those medications. Seniors who lack adequate drug coverage sometimes delay or skip taking medications that could improve their health.

Drug Price Negotiations

Congress recently enacted the Inflation Protection Act. A key component of that law is designed to help seniors by reducing drug prices for individuals insured by Medicare. The Act empowers the Secretary of Health and Human Services to negotiate prices for certain expensive drugs covered by Medicare Parts B and D. Most prescriptions filled at pharmacies are covered by Part D, while specially formulated drugs dispensed by healthcare providers (such as chemotherapy treatment) are covered by Part B.

Prices will be negotiated in four stages. The first two stages affect 25 drugs covered by Medicare part D. Depending on the drug, the renegotiated prices will take effect in 2026 or 2027. Renegotiated prices of another 35 drugs covered by Medicare Parts B or D will take effect in 2028 or 2029.

The negotiations will focus on widely prescribed drugs that have been on the market for years without generic competition. Blood thinners such as Eliquis and Xarelto, the blood cancer medication Imbruvica, and Januvia (a medication for diabetics that reduces blood sugar) are among the prescription drugs that are likely candidates for price negotiation. Immune therapy treatments for cancer are among the Part B medications that might be subject to price negotiation.

Proponents of the law expect some drug prices to be reduced by 25% if pharmaceutical manufacturers negotiate in good faith. Some advocates for seniors worry that drug companies will evade the law by authorizing limited (and largely illusory) generic competition for profitable drugs, thus depriving HHS of the power to negotiate their prices.

Inflation Protection

Drug companies might also try to game the system by raising prices before they are forced to negotiate lower prices. The Inflation Reduction Act attempts to counter that risk by penalizing drug companies that increase Medicare drug prices above the rate of inflation. Drug companies will be required to pay the government the difference between the price charged and the inflation rate for all Medicare sales of a covered drug.

Price increases exceeded the inflation rate for 23 of the 25 drugs that resulted in the highest Medicare Part D spending between 2018 and 2019. While the pharmaceutical industry argues that it needs high profits to develop new drugs, the evidence suggests that the industry invests in the most marketable drugs, not necessarily those that offer the best solutions to public health problems. Limiting price increases on Medicare drugs to the inflation rate is not likely to stifle innovation in the nation’s most profitable industry.

Out-of-Pocket Costs

The Inflation Reduction Act also addresses out-of-pocket costs that seniors pay on top of their Medicare Part D premiums. Seniors who purchase Part D insurance will not pay more than $2,000 per year in deductible and co-pay expenses. Prior to the Inflation Reduction Act, seniors could pay about $7,500 in out-of-pocket expenses for Part D drugs. 

In addition, most vaccines will be free under Medicare. The new law also caps the cost of Medicare-covered insulin at $35 a month. Those price controls take effect this year.

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