Millions of Older Americans are Already Benefitting from AARP-Supported Drug Law

En español | As we take time to acknowledge the contributions of past and current older persons during Older Americans Month, a new law passed in 2022 is lowering the prices of prescription drugs and creating significant savings for people with Medicare. Millions of older Americans are already benefitting from the new drug law, which requires Medicare to start negotiating the price of certain drugs, penalizes drug companies that increase their prices faster than inflation, caps seniors' annual out-of-pocket costs for prescription drugs in Medicare Part D, limits cost-sharing for insulin in Medicare drug plans and extends financial assistance to help people with limited resources afford health insurance.

The new law represents a fundamental shift in how the US approaches prescription drug pricing in Medicare and finally starts to hold drug companies accountable for their out-of-control prices. Here's a quick rundown of the new benefits and protections that are already available and what’s still to come.

Benefits that are available right now
Insulin co-pays capped at $35/month. Co-pays for a 30-day supply of any plan-covered insulin are now capped in Medicare Part D, with similar limits on out-of-pocket costs for insulin covered under Medicare Part B. Part D plans are required to offer this co-pay amount even before you meet your deductible for the year. Prior to the new drug law, the average out-of-pocket cost for people with Medicare was more than $60 per insulin fill. It’s estimated that 1.5 million Medicare beneficiaries would have saved an average of $500 each if this new protection had been in place in 2020.

Free vaccines for Medicare beneficiaries. If you’re on Medicare, you no longer have to pay anything out-of-pocket for vaccines that are recommended for adults by the Advisory Committee on Immunization Practices (ACIP). This was an important change for Medicare Part D-covered vaccines that previously required cost-sharing, such as shingles. Overall, 10.3 million enrollees received a Medicare Part D-covered vaccine with no cost sharing in 2023, representing about 20 percent of the total Part D population.

No cost sharing for catastrophic coverage in Part D. Under the original Part D benefit, once your out-of-pocket costs reached a certain threshold, you entered “catastrophic” coverage but were still responsible for 5% of your prescription drug costs, with no limit. In 2022, 1.5 million people in Medicare Part D prescription drug plans reached catastrophic coverage and had to continue paying 5% of their drug costs for the rest of the year, which sometimes meant paying thousands of dollars more. Now, people in Part D plans are not responsible for any out-of-pocket drug costs once they enter catastrophic coverage. This change is the first step of even bigger changes discussed below that will further limit annual out-of-pocket costs starting in 2025.

Expanded eligibility for Medicare Part D Extra Help. Medicare pays some or all of the out-of-pocket prescription drug costs for people with limited incomes and resources through the Extra Help program. This year, the income threshold for the full Extra Help benefit increased from 135 percent to 150 percent of the federal poverty level ($22,590 for a single person or $30,660 for a couple in 2024). This change improved access to affordable prescription drug coverage for nearly 300,000 individuals with Medicare, as well as an additional 3 million people who could benefit from Extra Help but aren’t currently enrolled.

Drug companies pay penalties for big price increases. Drug companies that increase the prices of their products faster than inflation must now pay the higher-than-inflation amount back to Medicare. For example, if inflation were 5%, and a drug price increased by 6%, the drug company has to pay the 1% difference for all Medicare-based sales of that drug back to Medicare. This provision addresses brand name drug companies' long-standing practice of increasing their prices year after year, often at rates that are higher than inflation.

The nonpartisan Congressional Budget Office (CBO) expects the new penalties to reduce drug prices for Medicare and the commercial health care market, which will lead to lower premiums and out-of-pocket costs for millions of Americans.

Medicare drug price negotiation process begins. The Department of Health and Human Services has launched a new annual process to identify the drugs Medicare spends the most money on and choose a subset of drugs for price negotiation. All of the selected drugs must be single source, meaning there is no generic or biosimilar competitor on the market, and the newest drugs on the market will not be eligible for negotiation. Drugs will only be eligible for the two-year negotiation process if it has been at least 7 years (for small molecule drugs) or 11 years (for biologic drugs) since they were approved by the US Food & Drug Administration (FDA).

Federal officials have already announced the first 10 drugs selected for Medicare drug price negotiation:

The selected drugs are used by varying patient population sizes, and total per enrollee spending on the drugs ranges from $3,000 to nearly $130,000 per year, indicating that the selection process successfully identified drugs that are widely used and/or expensive.

The drug price negotiation process is currently underway and will end by August 1, 2024. The final Medicare-negotiated prices for the first 10 selected drugs will be published by September 1, 2024, and take effect on January 1, 2026.

Keeping Health Insurance Affordable for Millions. In addition to the prescription drug-related provisions, the new law also helps adults under age 65 purchase affordable health insurance. The law provides ongoing financial assistance for adults with limited resources who purchase health insurance through state and federal exchanges. This assistance completely covers or lowers the costs of premiums for people with the lowest incomes and ensures that no one buying coverage on the exchanges pays more than 8.5 percent of their income towards premiums. Without this support, millions of Americans are at risk of losing their health coverage because they can no longer afford it – especially those who are 50 and older, who pay the highest rates (up to three times more) for their coverage. This financial assistance would have expired at the end of 2022 but is now available through 2025.

Benefits that are coming soon
Cap on annual out-of-pocket drug costs and Part D benefit changes (2025). Medicare Part D covers most of the prescription drugs that you pick up at the pharmacy. In 2025, the program will undergo several changes that will help reduce your out-of-pocket costs. Most importantly, you will not have to pay any out-of-pocket costs for your prescriptions once you hit an annual cap ($2,000 in 2025). There was previously no limit on how much a person on Part D could have to pay in a given year, and some Part D enrollees on expensive drugs faced out-of-pocket costs that exceeded $10,000 per year. The coverage gap where enrollees were originally responsible for 100% of their prescription drug costs (sometimes called the “donut hole”) will also be eliminated.

*Note: The new Medicare Part D out-of-pocket limit will increase annually based on Medicare Part D per capita spending along with the other parts of the benefit.

About 4.3 million people in Medicare Part D plans reached catastrophic coverage in 2022. Of them, about 1.5 million did not receive Extra Help and had to pay 5% of their prescription drug costs for the rest of the year, spending an average of nearly $3,100 out-of-pocket. The new $2,000 out-of-pocket limit will provide an important new financial protection for these enrollees, as well as anyone else in the program who is prescribed an expensive drug in the future.

The changes to the Part D benefit are also expected to encourage Part D plans to negotiate more aggressively with drug manufacturers.

Ability to spread out-of-pocket costs out over the year (2025). Starting in 2025, Medicare Part D plans must offer people the option of “smoothed” cost-sharing, which will allow them to spread their out-of-pocket costs over the course of the plan year. For example, someone on a very expensive drug who would otherwise have to pay $2,000 out-of-pocket in January 2025, reaching the new out-of-pocket limit, will instead be able to spread that $2,000 cost across 12 monthly payments. This mechanism will help protect people on expensive drugs from large out-of-pocket payments that may arise in a particular month and potentially improve their ability to afford their prescription medications.

People with Medicare begin to benefit from Medicare-negotiated drug prices (2026). Starting in 2026, anyone who gets a prescription for one of the 10 drugs negotiated this year will benefit from that new, negotiated price. The Department of Health and Human Services will add new drugs to the Medicare drug price negotiation process every year. Medicare is already negotiating for 10 drugs for prices that will become available in 2026 and will add up to 15 drugs in 2025 and 2026 for prices that will become available in 2027 and 2028, respectively. Starting in 2027, Medicare will add up to 20 drugs every year going forward for prices that will become available in 2029 and beyond. This means that as many as 60 drugs total could be selected and negotiated by 2029.

The Congressional Budget Office (CBO) expects Medicare drug price negotiation to lower the prices of selected drugs by roughly 50%, on average, and to reduce Medicare Part D enrollees’ out-of-pocket costs by $7 billion in 2031 alone.

Overall, the new drug law includes numerous provisions that have made historic improvements in the health and wellbeing of older Americans by making their prescription drugs more affordable. AARP worked for years supporting these changes and helping to push them across the finish line, and we will continue to work to ensure that this law is fully implemented and benefitting older Americans for decades to come.