$2,000 Medicare Drug Cap Begins Jan. 1

A staff member sorts through drugs while filling a prescription at the Clay-Battelle Community Health Center's pharmacy in Blacksville, W.Va., on March 21, 2017. Brendan Smialowski/AFP via Getty Images

Medicare recipients will pay no more than $2,000 annually for covered prescription drugs starting Jan. 1, a change that could potentially benefit millions of older Americans.

According to health policy research group KFF, 5 million Medicare Part D enrollees faced out-of-pocket drug costs of $2,000 or more in at least one year between 2012 and 2021.

A total of 6.8 million Part D enrollees have paid $2,000 or more out of pocket in at least one year since the program began in 2007.

Eliminating the Donut Hole

Until now, enrollees in Medicare Part D, which pays for prescription drugs, had a temporary gap in coverage, sometimes called a donut hole.

Under the standard Part D benefit in 2024, beneficiaries who spent $5,030 overall on covered prescription drugs entered a “coverage gap” until their out-of-pocket spending reached $8,000. At that point, catastrophic coverage would begin, limiting total out-of-pocket expenses to $3,500.

Starting in 2025, Part D enrollees who reach $2,000 in out-of-pocket expenses will qualify for catastrophic coverage with no further out-of-pocket expenses for covered drugs for the remainder of the calendar year.

President Joe Biden took credit for the plan, which was authorized by the Inflation Reduction Act of 2022 (IRA).

“I believe that health care should be a right—not a privilege—and throughout my presidency, I have advanced that goal,” Biden said in a Dec. 31 statement. “Before I took office, people with Medicare who took expensive drugs could face a crushing burden, paying $10,000 a year or more in copays for the drugs they need to stay alive.”

The $2,000 cap is one of several provisions of the IRA to bring down prescription drug costs for Medicare beneficiaries and reduce spending by the government.

Starting in 2023, the IRA required pharmaceutical companies to rebate payments to Medicare if drug prices rise faster than inflation, limited insulin costs to $35 per month for Medicare beneficiaries, and eliminated cost-sharing for adult vaccines.

In 2024, out-of-pocket spending for Medicare Part D enrollees was effectively capped at $3,250, and eligibility for the Low-Income Subsidy Program was expanded.

In 2026, the federal government will be required to negotiate prices with pharmaceutical companies for some drugs covered by Medicare Part B and D with the highest total spending.

Biden estimated that 19 million Medicare beneficiaries will save an average of $400 each because of changes already made. That’s about about $7.6 billion.

Medicare Costs

Under the terms of the IRA, the cost of prescription drugs dispensed under catastrophic coverage will be offered at a discount by drug companies. The manufacturer discount program will replace the existing Coverage Gap Discount program.

Average Part D premiums are expected to decrease from $53.95 to $46.50 in 2025, according to the Centers for Medicare & Medicaid Services. But a review by KFF showed premium increases for a number of stand-alone drug plans.

More than 14 million people pay no premium for Medicare Part D, thanks to the federal Low-Income Subsidy program.

Further, Aetna, UnitedHealthcare and others have cut back their stand-alone prescription drug plans. Insurers will offer 524 prescription drug plans to Medicare beneficiaries in 2025, down from 709 in 2024, KFF reported.

Peter C. Earle, senior economist at the American Institute for Economic Research, said there should be more discussion of the trade-offs required when making health care policy changes such as the prescription drug cost cap.

“The likely consequences of this measure are higher costs and declining availability of goods and services elsewhere, in addition to the probability of higher government debt, fiscal deficits, and inflationary effects down the road,” Earle told The Epoch Times.

“It’s likely that in response to being forced to accept lower payments, insurers raise premiums for Medicare Advantage and Part D plans,” Earle said. That could result in higher federal spending and a reduced incentive for insurers to negotiate prices with drug manufacturers, he added.

About 54 million of the 67 million Medicare beneficiaries were enrolled in Part D coverage in 2024, according to the Congressional Budget Office (CBO). Mandatory expenses for Part D coverage were estimated at $115 billion. About $6 billion of that was to be offset by Part D premium payments and another $18 billion in Part D payments by states.

The CBO expects Medicare spending to more than double over the next 10 years, mainly due to increasing enrollment and health care costs.