Medicare to Negotiate Prescription Drug Prices

School of Social Security & Medicare

Medicare prescription drug prices represented by pills lying on top of paper currency.

A 2021 poll showed that 92% of Americans supported allowing the federal government to negotiate prescription drug prices and 66% of Americans thought it was a “top priority.” On this issue, the public’s opinions were finally heeded.

On August 16, President Biden signed the Inflation Reduction Act of 2022 into law which included a provision giving Medicare the ability to negotiate prescription drug prices. More than 49 million Americans rely on Medicare Part D to cover their prescription drug needs and this new legislation could impact how much they pay at the pharmacy.

Why would Medicare want to negotiate drug prices?

Both Medicare Part B and Part D have significant prescription drug expenditures and a few medicines represent most of Medicare drug spending. Medicare Part D covers nearly 3,500 drugs, but just 250 of those account for 60% of drug costs for this program. For Part B, just 50 drugs make up 80% of drug spending. These drugs often have no alternatives and only one manufacturer which allows prices to be set substantially higher than many would consider fair.

Source: KFF

Medicare was the largest single purchaser of personal health care in 2019. For this reason, the Medicare program has significant bargaining power. In other aspects of health care, like doctor visits and hospital stays, Medicare negotiates prices to keep care as affordable as possible. Until now, the program has been prevented from implementing a similar strategy regarding prescription drug prices.

Which drugs will Medicare negotiate?

With the new legislation, Medicare will negotiate the prices of certain drugs covered by Part D beginning in 2026 and Part B beginning in 2028. However, the number and the types of drugs eligible for negotiation will be limited.

Once the new legislation is initiated, Medicare can negotiate the prices of 10 Part D drugs in 2026. Then in 2027, this will be increased to 15 Part D drugs. In 2028, Medicare will be able to negotiate the prices of 15 Part B or Part D drugs, and, in 2029 and beyond, this will be further increased to 20 Part B or Part D drugs.

These drugs will be chosen by the U.S. Department of Health & Human Services Secretary from a list of 50 eligible drugs that account for the highest total Medicare Part D and Part B spending. Some drugs will not be eligible for negotiations. Exclusions include drugs that have a generic or biosimilar alternative, small-molecule drugs less than 9 years old, biological products less than 13 years old, and drugs that account for less than $200 million in Medicare spending.

How will Medicare negotiations benefit beneficiaries?

The Congressional Budget Office estimates that negotiations would save about $71 billion from 2022 through 2031. These cost savings could translate to lower out-of-pocket costs for Medicare beneficiaries who are prescribed the negotiated drugs. In addition, lower costs for the Medicare program could lead to lower increases for Medicare premiums in the coming years.

Other Medicare Provisions of the Inflation Reduction Act

In addition to negotiating drug prices, there are other provisions of the Inflation Reduction Act that could impact Medicare beneficiaries. These include:

  • Limiting Medicare Part D premium growth to no more than 6% per year from 2024 through 2030
  • Requiring drug companies to pay rebates if drug prices rise more quickly than inflation
  • Limiting insulin copays to no more than $35/month beginning in 2023
  • Reducing costs and improving coverage for adult vaccines
  • Eliminating the 5% coinsurance for Part D catastrophic coverage
  • Expanding eligibility for the Part D low-income subsidy
  • Adding a $2,000 out-of-pocket cap for Part D beneficiaries

These provisions will be implemented in phases from 2023 through 2030.

Source: KFF

After these provisions take effect, Medicare beneficiaries could see reduced out-of-pocket expenses and a lower overall cost of care. Those who currently rely on Medicare for all or a part of their prescription drug coverage, and those who plan to use Medicare as a part of their retirement plan, should consult an experienced financial advisor to determine how these changes could impact their financial plan.

Get Answers to All of Your Medicare Questions with Meld Financial

Medicare policy can change rapidly, as evidenced by the newest legislation. To learn how these changes could impact you, speak with an experienced advisor at Meld Financial.

Our team of tax, legal, and investment professionals has helped clients navigate Medicare, Social Security, and their retirement journeys for nearly 40 years. During that time, we developed Financial Fingerprint™ – a comprehensive wealth management plan that is quick to assemble, easy to understand, and simple to modify as your circumstances change. With Financial Fingerprint™ and an advisor at Meld, you can rest assured that your retirement plan is designed to maximize your Medicare benefits.

To learn more, contact us.

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