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The Inflation Reduction Act and How it Impacts Medicare

gavel on law books - the inflation reduction act

In August 2022, the Inflation Reduction Act was signed into law. This new legislation will cause changes regarding the labor and manufacturing industries, the tax code, and, perhaps most important to many Americans, the cost of Medicare.

The Inflation Reduction Act’s Impact on Medicare

The Inflation Reduction Act promises to bring about significant changes when it comes to Medicare costs. 

Here are eight different ways the law will affect your Medicare coverage:

  1. Prescription Drug Price Drop

Beginning in 2026, Medicare will start the process of negotiating prices of prescription drugs with pharmaceutical companies. The first implementation of this will start with negotiations for ten drugs. 

In 2027 and 2028, this will increase to negotiations for 15 drugs. And finally, in 2029, Medicare will negotiate prices on 20 drugs every year! This will become the norm every year afterward.

After 2026, when Medicare starts implementing the Inflation Reduction Act, you can expect the cost of some prescription drugs to drop significantly. However, just how much the prices drop will depend on the drug type and negotiation outcomes.

  1. Out-of-Pocket Insulin Costs Reduced

A diagnosis of type 1 diabetes has been made in approximately 1.25 million people in the United States. This includes both adults and children. Without quality insurance, many of them face up to $600 in insulin costs per month.

It’s so financially straining that many of them have to choose between paying for their medicine or utility bills.

But luckily, in 2023, those who receive Medicare will only be responsible for paying a maximum of $35 per month for their out-of-pocket insulin costs. What a relief!

  1. $2,000 Drug Cost Cap

Beginning in 2025, once a recipient reaches their out-of-pocket maximum costs, the total amount that they are responsible for paying for prescription drugs will be capped at $2,000. 

However, as Medicare spends more, these caps will increase by the percentage Medicare spends in a year. For instance, if Medicare’s spending goes up by 5 percent, the cap on how much they will pay for their prescriptions will also go up by 5 percent, bringing the total to $2,100, and so on.

  1. Pharmaceutical Company Rebates

In the event that pharmaceutical companies raise their prices at a rate that is higher than the rate of inflation, Medicare will require those companies to send a rebate to cover the additional expense.

  1. Changes to Eligibility for Extra Help

The Low-Income Subsidy is also known as “Extra Help.” This Extra Help is accessible through the Medicare Part D prescription medication program. 

Being enrolled in the Low-Income Subsidy does not enroll you in a Medicare Prescription Drug Plan, nor do you need it. To apply for Extra Help, you must first be enrolled in a Medicare-approved prescription drug provider.

Medicare recipients are eligible for Extra Help with monthly premiums, yearly deductibles, and co-payments for medication coverage.

In the past, if you wanted to qualify for Extra Help, your annual income had to be at least 135 percent of the federal poverty rate. Now, If your income is equal to or greater than 150 percent of the federal poverty rate, you are eligible for the Low-Income Subsidy. 

As of 2022, the federal poverty rate was $13,590. So to qualify for a subsidy, your annual income needs to be no more than $20,385. This is a higher minimum requirement than the previous threshold of $18,346.

  1. Part D premiums will be capped according to the country’s inflation rate. They cannot increase by more than six percent per year.
  1. Adult vaccines will not require any out-of-pocket costs starting in 2023. 
  1. Once you reach part D catastrophic coverage, your drug costs will be significantly reduced: $3.95 for generic prescriptions or $9.85 for brand-name drugs. 

Timeline for the Inflation Reduction Act’s Effects on Medicare

Starting in 2023, drug companies will be required to pay rebates to Medicare if their prices for drugs rise above the inflation rate. Insulin copays will be capped at $35 per month. From then on, in 2024, the eligibility for Low-Income Subsidy full benefits will be increased by 15 percent. In 2025, the $2,000 cap for all drugs in part D will take effect. And starting in 2026, Medicare will begin to negotiate drug costs with pharmaceutical companies beginning with ten drugs and moving to 20 within four years.

Do you want to know more about the Inflation Reduction Act’s impacts on your health insurance? Let My Healthcare Direct guide you through the changes. Call us today.

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