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Medicare is beginning to rein in drug costs for older Americans

Medicare is beginning to rein in drug costs for older Americans

The third big change: If prices for drugs that fall under Part D and some fall under Part B rise faster than the rate of inflation, the law now requires drugmakers to pay rebates or face harsh penalties.

Although these rebates go to Medicare and not individuals, “if you’re responsible for part of the cost of a drug and there’s a limit to how much that can go up, theoretically your cost should go down,” Mr. Lipschutz said.

It will be months before Medicare determines which price increases will result in rebates and how much the rebates will be. But the Congressional Budget Office has estimated that this provision will save Medicare more than $56 billion over 10 years.

Medicaid has used a similar strategy since the 1990s. “It definitely has an impact on keeping spending under control,” said Dr. Cubanski. “The hope is that it will have the same effect for Medicare.”

The changes in the following years will be more dramatic.

In 2025, Medicare will set a $2,000 annual out-of-pocket limit for Part D beneficiaries. “Today, many drugs can cost $500 or $1,000 a month,” said Dr. Cubanski. “Or maybe you’re on 10 medications and that adds up to a high cost of ownership.”

A cap of sorts will take effect even earlier, in 2024. Then Medicare will remove the 5 percent co-payment that beneficiaries are responsible for once they exceed the catastrophic spending threshold, effectively capping out-of-pocket expenses at about $3,250 . The $2,000 cap goes into effect the following year. Access to subsidies for low earners will also be expanded.

Perhaps the most significant policy change is that the new law requires Medicare to enter into negotiations with drug manufacturers, “the first time the federal government has not only the authority, but the obligation, to negotiate prices on behalf of Medicare beneficiaries,” said Dr. Cubanski.

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