Medicare's Prescription Drug Plan Makeover

October 27, 2022

Therese Humphrey Ball has struggled to afford her multiple sclerosis medications since her diagnosis in 2003. (Photo by Jamie Kelter Davis for Tradeoffs)

An overhaul of Medicare’s prescription drug benefit will lower costs for seniors while changing incentives for insurers and drugmakers. 

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The federal health insurance program for older Americans is taking a historic step: Medicare is capping out-of-pocket costs for seniors who have the prescription drug benefit known as Part D.

Starting in 2025, the 49 million seniors in the program will not have to spend more than $2,000 of their own money on prescription drugs each year.

The new limit, part of the Inflation Reduction Act passed by Congress in August, targets an estimated 1.4 million older Americans who spend more than that annually.

The IRA’s ambitious goal is to cut costs for seniors and the Medicare program overall, while increasing the share of costs to insurance companies and drug manufacturers.

Increasing senior access

Currently, there are no spending limits, forcing some seniors relying on expensive drugs to clear out savings and retirement accounts to pay for medications.

Multiple sclerosis patient Therese Humphrey Ball was one of them. The 68-year-old former nurse from Indiana had to ration and eventually go off one of her medications for several months. Copaxone had successfully treated her MS for eight years, but the drug was costing her $6,000 a month, more than her monthly income.

Teva Pharmaceuticals, the maker of Copaxone, hiked the price 27 times in 25 years. The drug now costs around $7,000 per month, 10 times what it did when it was first launched in 1997.

The disease and the cost to treat it was a one-two punch to Humphrey Ball’s life. Symptoms like loss of vision and weakness in her legs forced her to retire early and move out of her nice apartment.

“The worst was for the first two months, no heat,” Humphrey Ball said, “It was like something you never thought you’d live in.”

But she felt she had no other options. “You can’t imagine how mad I was,” she said, “…to think that in the United States of America, people have to do this. It is not right.”

Humphrey Ball channeled that anger by testifying on Zoom in front of Congress in May 2021, as it considered a precursor to the IRA.

“I can’t control my disease or change that I have MS but telling you my story and advocating for lower prices is something I can control,” she told lawmakers.

Therese Humphrey Ball, 68,  bakes chocolate chip cookies in her Ogden Dunes, Indiana home on October 25, 2022. (Photo by Jamie Kelter Davis for Tradeoffs)

New benefit shifts responsibility to drugmakers and insurers

The overhaul of Medicare’s prescription drug benefit is an attempt to decrease patients’ and Medicare’s cost burden while increasing how much insurers and drugmakers are on the hook for when it comes to Part D drugs. Although Medicare is a federal program, seniors get coverage through private insurers.

Under the current design, Medicare spent $52 billion, or nearly half of all Part D dollars on the roughly 2 percent of beneficiaries that are taking expensive medications.

“It really boils down to a basic problem with the original design of the Part D benefit,” said Juliette Cubanski, Deputy Director of Medicare Policy for the Kaiser Family Foundation (KFF). “For both patients and for the Medicare program, the risk is completely open ended.”

Much of the risk rebalancing starting in 2025 will happen after patients reach that $2,000 spending threshold. The new benefit decreases costs to the Medicare program to 20 percent, down from 80 percent. Meanwhile drugmakers will now be required to give a 20 percent discount on the sticker price of drugs. Insurance companies will be responsible for 60 percent of drug costs, four times their current responsibility.

That’s intended to create incentives for insurers to negotiate harder with drug manufacturers for lower prices.

As insurer risk increases, companies will likely look to other levers to control costs. The new IRA rules limit annual premium increases to 6 percent per year.

But Cubanski warns that insurers could potentially slim down benefits. Insurers also could limit the list of drugs they cover or more tightly control which medications patients take. That could make it harder for seniors to get the drugs they need.

“Medicare beneficiaries overall, they’re getting a much better benefit in terms of their out-of-pocket cost exposure,” Cubanski said of Part D’s shift to more financial responsibility for insurers. But she cautions seniors could also be giving up easy access to more types of drugs with zero deductibles and low premiums.

While the new spending limit is likely to raise insurance company costs, it could be a boon to drugmakers.

“Drug manufacturers love the cap,” Cubanski said, “making drugs more affordable for patients means they’ll be less likely to skip doses.”

While demand for prescription drugs is expected to increase, the new Part D law includes other provisions aimed at reining in drug prices that could limit revenue for manufacturers. Those include giving Medicare the power to negotiate drug prices and penalizing drugmakers for hiking prices faster than inflation.

One potential consequence that Cubanksi and others are watching for is higher launch prices for new drugs.

While seniors will be shielded from those high prices with the new cap, they could face other challenges, including higher premiums and skimpier benefits as insurance companies look to limit their expenses.

Tradeoffs coverage of issues facing older Americans is supported in part by The SCAN Foundation — advancing a coordinated and easily navigated system of high-quality services for older adults that preserve dignity and independence.

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Episode Resources

Selected Reporting and Research on Medicare’s Prescription Drug Benefit

An Overview of the Medicare Part D Prescription Drug Benefit (Kaiser Family Foundation, 10/19/22)

Explaining the Prescription Drug Provisions in the Inflation Reduction Act (Juliette Cubanski, Tricia Neuman and Meredith Freed; Kaiser Family Foundation; 9/22/22)

Understanding The Democrats’ Drug Pricing Package (Rachel Sachs, Health Affairs Forefront, 8/10/2022)

The Medicare prescription drug program (Part D): Status report (MedPAC, 3/2022)

Drug Pricing Investigation Teva – Copaxone (Staff Report Committee on Oversight and Reform, U.S. House of Representatives, 9/2020)

Episode Credits


Therese Humphrey Ball, multiple sclerosis patient and advocate

Juliette Cubanski PhD, MPP, MPH, Deputy Director for Program on Medicare Policy at the Kaiser Family Foundation.

The Tradeoffs theme song was composed by Ty Citerman, with additional music this episode by Blue Dot Sessions and Epidemic Sound.

This episode was reported by Alex Olgin and mixed by Andrew Parrella. Editing assistance from Cate Cahan.

Additional thanks to: Kara Cardinale, Stacie Dusetzina, Audrey Baker, David Mitchell and Jim Matthews, the Tradeoffs Advisory Board and our stellar staff!