Millions of People with Medicare Will Benefit from the New Out-of-Pocket Drug Spending Cap Over Time
In 2025, Medicare beneficiaries will pay no more than $2,000 out of pocket for prescription drugs covered under Part D, Medicare’s outpatient drug benefit. This is due to a provision in the Inflation Reduction Act of 2022, which included several changes to the Medicare Part D program designed to lower patient out-of-pocket costs and reduce what Medicare spends on prescription drugs. This new $2,000 cap (indexed annually to the rate of change in Part D costs) comes on top of the elimination of 5% coinsurance in the catastrophic coverage phase of the Part D benefit, in effect for 2024, which translates to a cap of about $3,300 out of pocket for brand-name drugs. These benefit design changes will save thousands of dollars for people who take high-cost drugs for cancer, rheumatoid arthritis, and other serious conditions.
If a $2,000 cap on out-of-pocket drug spending had been in place in 2021, 1.5 million Medicare beneficiaries enrolled in Part D plans would have saved money because they spent $2,000 or more out of pocket on prescription drugs that year. This estimate is based on KFF analysis of Medicare Part D prescription drug claims data for enrollees without Part D low-income subsidies in 2021 (the most recent year available for this analysis). Among these 1.5 million enrollees, most (1.0 million or 68%) spent between $2,000 and $3,000 out of pocket, while 0.3 million (20%) had spending of $3,000 up to $5,000, and 0.2 million (12%) spent $5,000 or more out of pocket.
Over the course of several years, however, far more Part D enrollees will stand to see savings from this new out-of-pocket spending cap than in any single year. A total of 5 million Part D enrollees had out-of-pocket drug costs of $2,000 or more in at least one year during the 10-year period between 2012 and 2021, while 6.8 million Part D enrollees have paid $2,000 or more out of pocket in at least one year since 2007, the first full year of the Part D program (Figure 1).
In most states, tens of thousands, if not hundreds of thousands, of Medicare beneficiaries will feel relief from the new Part D out-of-pocket spending cap (Table 1). In California, Florida, and Texas, more than 100,000 Part D enrollees faced out-of-pocket costs of $2,000 or more in 2021, and in another 6 states (New York, Pennsylvania, Ohio, Illinois, North Carolina, and New Jersey), between 50,000 and 82,000 did so. As at the national level, more Part D enrollees in each state will benefit over time. For example, in Iowa, Louisiana, and Maryland, 73,000 Part D enrollees faced out-of-pocket costs of $2,000 or more in at least one year between 2012 and 2021. In Michigan, New Jersey, and Georgia, 148,000, 158,000, and 159,000 Part D enrollees, respectively, spent $2,000 or more in at least one year over this same 10-year period. In Texas, 364,000 Part D enrollees did so; in Florida and California, around 400,000 enrollees or more.
Capping out-of-pocket spending will help Part D enrollees with relatively high drug costs, which may include only a relatively small number of Part D enrollees in any given year but, as this analysis shows, a larger number over time. People who will be helped include those who have persistently high drug costs over multiple years and others who have high costs in one year but not over time. While a cap on out-of-pocket costs will help millions of Part D enrollees over time, higher plan costs to provide the Part D benefit could also mean higher plan premiums, a dynamic that the Inflation Reduction Act’s premium stabilization provision was designed to mitigate. Although KFF polling shows that a relatively small share of older adults is aware of the Inflation Reduction Act’s $2,000 cap on out-of-pocket drug costs for Part D enrollees that takes effect in 2025, millions of them will benefit from this cap in the years to come.
Juliette Cubanski and Tricia Neuman are with KFF. Anthony Damico is an independent consultant.
This work was supported in part by Arnold Ventures. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.