New analysis finds limiting out-of-pocket drug spending will help older Americans afford medications

Had the upcoming cap on out-of-pocket spending on Medicare Part D-covered prescription drugs been in effect in 2021, 1.5 million enrollees would have saved money on their medications that year, according to a new analysis released Feb. 8 by the nonpartisan KFF. And millions more could have lower drug costs over time.

In 2025, Medicare beneficiaries won’t have to pay more than $2,000 a year in copays or coinsurance for the prescription drugs their plan covers. The spending cap will apply to original Medicare enrollees who have a Part D prescription drug plan and beneficiaries with a Medicare Advantage plan that includes prescription drug coverage. After 2025, the out-of-pocket cap could increase if Medicare spending on prescription drugs continues to rise.

“This new analysis highlights the importance of the new out-of-pocket limit and why AARP fought so hard for the new law that created it,” says Leigh Purvis, AARP’s prescription drug policy principal. “Before the new law, millions of people in Medicare prescription drug plans were facing high out-of-pocket costs for their prescription drugs. Now their out-of-pocket costs will be capped every year, creating an important new protection for them and for anyone who has to take an expensive drug in the future.”

While they wait for the $2,000 cap to kick in next year, Medicare Part D enrollees with high drug costs are already benefiting from the elimination in 2024 of the 5 percent coinsurance requirement for those whose costs put them in the so-called catastrophic phase of Part D. This is the phase for people with ultra-high out-of-pocket drug costs. According to KFF, this change to catastrophic coverage translates to an effective cap of about $3,300 in out-of-pocket costs for brand-name prescription drugs.

The health law’s catastrophic phase change and the $2,000 out-of-pocket cap will “save thousands of dollars for people who take high-cost drugs for cancer, rheumatoid arthritis and other serious conditions,” the KFF report says. After 2025, the cap will be indexed for inflation.

Medicare changes help millions of beneficiaries

While KFF estimates that 1.5 million enrollees could save money in any single year because of the out-of-pocket cap, the report also says that millions more stand to save money over the course of several years. Using 2021 data, the most recent available, KFF determined that 5 million Part D enrollees had out-of-pocket drug costs of $2,000 or more in at least one year between 2012 and 2021, and that 6.8 million beneficiaries with drug coverage paid $2,000 or more for their medications in at least one year since the Part D drug benefit went into effect in 2007.

KFF released its report on the same day that the chief executive officers of three pharmaceutical companies that make some of the highest-priced drugs Medicare covers testified before the U.S. Senate’s Health, Education, Labor and Pensions Committee.

At the hearing, Sen. Chris Murphy (D-Conn.) said one of his constituents needs to take Eliquis, the blood thinner medication that Medicare spends more on each year than any other brand-name drug. Murphy said this constituent had to pay $350 a month for Eliquis, the best price she could find under Medicare. “Her choice is to pay the $350 or go without food or pay rent,” Murphy told Chris Boerner, the CEO of Bristol Myers Squibb, the company that manufactures the medication. Or, Murphy said, she could “not take the drug and risk a heart attack or stroke.”

In addition to the out-of-pocket spending provisions, the new Rx law requires manufacturers to pay a rebate to Medicare if they raise their prices more than the rate of inflation and caps insulin copays under Medicare at $35 a month. The legislation also for the first time allows Medicare to negotiate with drugmakers for the price of certain high-cost medications. Eliquis is among the first 10 brand-name drugs whose prices are being negotiated. The negotiated prices will take effect in 2026.