Medicare caps seniors drug expenses: What you need to know

Medicare recipients who take expensive prescriptions will get a break this year with a $2,000 cap on drug costs.

The cap will reduce out-of-pocket spending for potentially millions of older Americans in Medicare Part D, which covers pharmacy or mail-order prescriptions. The cap doesn't apply to drugs administered by doctors.

The cap is part of the Inflation Reduction Act, the 2022 federal climate and health care bill that also empowered Medicare to negotiate drug prices with pharmaceutical companies. Because the cap was approved by Congress, it would take an act of Congress to overturn, but the incoming Trump administration could influence how it is administered.

While the government expects the drug price negotiations will save the federal health program billions in spending, the cap is more likely to directly benefit seniors who had to spend thousands each year on costly drugs to treat conditions such as cancer or rheumatoid arthritis.

"There's peace of mind that they won't be bankrupted in order to get the medications they need.," said Juliette Cubanski, deputy director of the program on Medicare policy at KFF, a health policy nonprofit.

What did consumers pay before this year's cap?

Medicare, the federal health program for adults over 65 and the disabled, covers prescription drugs through Part D insurance plans. In past years, these plans had a coverage gap that required seniors to pay a portion of their pharmacy bill when total spending met a certain threshold.

Five cancer drugs ? Revlimid, Pomalyst, Imbruvica, Jakafi, and Ibrance ? cost Medicare enrollees $11,000 to nearly $15,000 per drug in 2023, according to a KFF analysis.

What's more, the coverage gap puzzled people who often paid different amounts for the same drug from month to month, Cubanski said.

"The structure of the benefit was somewhat confusing and also left people potentially on the hook for thousands of dollars in out-of-pocket costs," Cubanski said.

Now, the coverage gap is gone. Last year consumers' out-of-pocket costs were capped at about $3,300 per year. As of Jan. 1, the cap dropped to $2,000 per year.

Before the caps, "there were a lot of people who were facing really high out-of-pocket costs, sometimes $10,000 (or more) per year," said Leigh Purvis, prescription drug policy principal at AARP’s public policy institute. "The fact that there's now this $2,000 cap is a massive improvement for people."

How many people will benefit from the price cap?

AARP estimates more than 3 million Medicare enrollees will save money on prescription drugs this year due to the cap, said Purvis.

A KFF analysis of Part D claims in 2021 found that 1.5 million Medicare beneficiaries paid more than $2,000 in out-of-pocket costs.

California had the most people who would benefit from the cap, followed by Florida, Texas, New York and Pennsylvania, according to KFF.

Diana DiVito, 83, of North Strabane, Pennsylvania, has lived with a type of blood cancer called chronic lymphocytic leukemia for about two decades.

She began taking the drug Imbruvica nearly a decade ago. When she first picked up the oral medication from a pharmacy in January 2016, "I about had a heart attack" when she learned the first copay was $2,500.

The drug has controlled her cancer, but she spent $56,000 out of pocket over the first five years.

She is grateful she's had access to the lifesaving medication. She's watched her grandchildren grow, and she took care of her husband before he died last year.

When she filled the medication for the first time this year on Jan. 3, she paid $2,000 ? the portion of the bill insurance didn't cover. That's all she'll pay for the rest of the year for her Imbruvica refills and another pricey thyroid medication, Synthroid. She also takes some generics. Medicare recipients can also choose to spread out payments over the year to reach the $2,000 cap.

"It's great to know that I'm finished paying for the year," DiVito said. "If people don't take one of these expensive drugs, they don't understand the impact of this cap. It's a blessing."

The Medicare drug cap is great for consumers: Who will pay for it?

The Biden administration has said negotiated drug discounts will help offset the costs of the Inflation Reduction Act. The administration negotiated discounts with pharmaceutical companies on 10 drugs prescribed to treat blood clots, cancer, heart disease and diabetes.

The discounts will range from 38% to 79% when the negotiated prices take effect in 2026. The bargaining will save Medicare $6 billion when the price cuts are implemented, according to federal estimates.

Private insurance plans that contract with Medicare to cover prescription drugs also will absorb higher costs.

Last July, the Biden administration announced a project to stabilize monthly premiums for Medicare drug plans this year. Participating insurance plans agreed to limit monthly premium hikes to no more than $35. The Congressional Budget Office estimated these plans would get $5 billion in federal subsidies this year, according to KFF.

Caveats for consumers

Because Medicare plans are absorbing a larger share of the costs, they might try to manage expenses by limiting their formularies of drugs people can access or encourage people to choose similar but less expensive drugs, said Jack Hoadley, a Georgetown University McCourt School of Public Policy research professor emeritus who counsels Medicare enrollees.

Hoadley said it's important for Medicare enrollees to scrutinize their drug plans every year because formularies and coverage tiers change.

Drugs administered by doctors such as oncologists or rheumatologists are paid by another Medicare program, called Part B and aren't covered by the cap. So while consumers might get a financial break on chemotherapy pills if they meet the $2,000 cap, they could still be billed for a doctor-administered chemotherapy infusion, for example.

Under Part B, Medicare pays 80% while consumers pay 20% unless they also have a supplemental coverage plan.

The federal law also lowers insulin prices, covers vaccines

The Inflation Reduction Act also capped Medicare recipients' out-of-pocket insulin costs at $35 per dose. While that provision did not extend to Americans covered by private insurance plans, three major insulin makers slashed prices by 70% or more on their respective products.

Medicare recipients also won't pay out-of-pocket costs for recommended vaccines such as shingles, whooping cough, or tetanus.

This article originally appeared on USA TODAY: Medicare caps annual drug expenses: What you need to know