Most Medicare patients who meet the new $2,000 cap on out-of-pocket prescription drug spending could see massive savings despite changes in premiums, according to a report released Thursday by AARP.
The findings suggest the cap could be a big benefit for older adults in Medicare who struggle to afford expensive medications for cancer, rheumatoid arthritis and other serious illnesses. These seniors and other U.S. patients pay two to three times more for prescription drugs than people in other developed countries.
The limit came into effect earlier this year. It's one of the most consequential provisions in President Joe Biden's 2022 Inflation Reduction Act, which aims to reduce high drug costs – along with a new $35 a month cap on insulin and Medicare drug price negotiations with manufacturers .
The report found that 94% of the more than 1 million Medicare Part D enrollees expected to reach the new cap in 2025 will have lower out-of-pocket costs — including premiums and cost sharing — and will save an average of $2,474. That represents an average reduction in total out-of-pocket costs of 48%, according to the report, which analyzed plan enrollment and premium data, among other data.
That 1 million figure excludes Medicare beneficiaries who receive a specific low-income subsidy and those who participate in employer waiver plans.
An estimated 62% of those 1 million participants will save an average of more than $1,000 in 2025, while 12% will save more than $5,000, the report said. The remaining 6% of Part D enrollees expected to reach the new cap are expected to have higher out-of-pocket costs, with an average of $268 in additional expenses in 2025, the report said.
Notably, the proportion of Part D enrollees expected to reach the cap and have lower total out-of-pocket costs in 2025 is estimated to be 95% or higher in 33 states and Washington, DC
“Being able to provide that kind of savings frees up those funds for other really important things [patients] “We had to compromise between paying for their food or their rent,” said Leigh Purvis, director of prescription drug policy at AARP, in an interview. “That's a really significant impact, especially for a population that's tied to a landline budget income.”
She added that the average income of Medicare recipients is about $36,000 a year.
These savings come despite changes to Part D premiums in 2025, AARP said. Purvis said the new prices for the first 10 drugs selected for Medicare negotiations — and the lower costs expected from them — don't take effect until 2026, so premiums have increased in some cases.
She said critics have tried to blame the law for those premium increases and higher costs for Medicare enrollees overall. According to the report, lower out-of-pocket costs will more than offset the higher premiums for most patients who reach the $2,000 cap.
The positive effect will “become even greater” when new negotiated prices for the first round of drugs come into effect in 2026, the report says.
“The Medicare program is going to save a lot of money, so this is really a story that's a lot bigger than it seems, simply because these savings will benefit a lot of different people in a lot of different ways,” Purvis said.
A separate report from AARP found that 3.2 million Medicare recipients are expected to see savings from the out-of-pocket cap in 2025. By 2029, the number is expected to rise to 4.1 million insured people.
Medicare covers about 66 million people in the U.S., and 50.5 million patients are enrolled in Part D plans, according to 2023 data from health research organization KFF.
The new price cap applies to all prescription drugs under Medicare Part D, but does not include drugs administered to patients in the hospital or other health care settings, such as anesthesia and chemotherapy.
Before the change, Medicare enrollees typically had to spend $7,000 or more out-of-pocket on prescription drugs before qualifying for so-called “catastrophic coverage,” in which insurance steps in and covers most of the drug costs.
Under this coverage, patients are charged a small copayment or percentage of the drug cost, typically 5%.
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