Medicare’s new $2,000 drug cap promises hefty savings

Going into the new year, seniors who take prescription drugs and receive Medicare benefits are likely to shell out less for those treatments. That’s due to a provision in the 2022 Inflation Reduction Act, set to begin in 2025, which will cap out-of-pocket costs on prescriptions at $2,000 annually.

“Starting in 2025, all Medicare plans will include a $2,000 cap on what you pay out-of-pocket for prescription drugs covered by your plan,” Medicare.gov states. “If your out-of-pocket spending on covered drugs reaches $2,000 (including certain payments made on your behalf, like through the Extra Help program), you’ll automatically get ‘catastrophic coverage.’ That means you won’t have to pay out-of-pocket for covered Part D drugs for the rest of the calendar year.”

For seniors who have a lot of monthly prescriptions, that could add up to a lot of savings. That’s especially true because, according to Medicare.gov, a 2024 coverage gap called “the donut hole” left some Medicare recipients with a higher threshold to meet before their prescriptions were covered. The donut hole meant there was a “temporary limit on what the drug plan” would cover. “In 2024, you won’t get catastrophic coverage unless your out-of-pocket spending reaches $8,000,” the page reads.

Some enrollees with high prescription drug costs saw those expenses capped at $3,500 this year. In 2024, more than half a million hit that threshold less than halfway through the year. Prior to the Inflation Reduction Law, there was no cap on medication expenses covered by their Part D drug plans.

Other provisions from the Inflation Reduction Act have already gone into effect, like lowering the cost on a number of prescription drugs. The Inflation Reduction Act has also sought to hold drug companies accountable for rising prices, too, by requiring that if companies raise prices faster than the rate of inflation, they’ll be subject to paying a rebate to Medicare, essentially discouraging outlandish price hikes. “If they do that, they’re going to have to pay the difference back to Medicare,” President Biden said in August 2023 remarks. “That’ll create an incentive to keep prices from skyrocketing. And negotiating drug prices alongside other parts of the law will save the federal government $160 billion—reducing the cost of government by $160 billion.”

The law also made insulin available at $35/month per covered prescription, gave access to recommended adult vaccines without cost-sharing, and expanded the low-income subsidy program (LIS or “Extra Help”) under Medicare Part D to 150% of the federal poverty level.

According to AARP, about three million Medicare members who don’t receive the program’s low-income subsidy will benefit from the 2025 prescription drug expense spending cap. That figure is expected to rise to four million over the next four years.