Medicare begins to rein in drug costs for older Americans
Steve Lubin spent quite a bit last year on insulin in order to control his Type II diabetes.
Lubin, a retired Philadelphia nurse, relies on Medicare to provide health insurance, which includes a Part D plan for drug costs. Yet, his out-of-pocket costs kept mounting, including a deductible of $480, monthly supplies of two forms of insulin, and higher prices once he entered the “coverage gap.” His total insulin tab in 2022: $1,582.
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Lubin, now 68, cheered for the federal Inflation Reduction Act. It included provisions that would have capped Part D beneficiaries’ insulin prices at $35 per month. There was no deductible. He signed petitions circulated by the American Diabetes Association and the Pennsylvania Health Access Network asking Congress to vote “yes.”
“My income is definitely down from when I was working, and the expenses go up,” he said. “It’s difficult.”
Lubin supported the bill as well because he has seen the severe consequences of diabetes in patients who couldn’t afford prescriptions after years of working in an ICU.
“You’d take their history and find out that they were rationing their insulin or couldn’t take it at all,” he recalled.
Congress passed the bill in August. President Joe Biden signed it. Lubin’s out-of-pocket insulin costs for 2023 will fall to $630. Other requirements are set forth in the legislation to lower drug prices for Medicare beneficiaries. About three-quarters of Medicare beneficiaries have Part D plans.
“It’s one of the biggest changes to the way Medicare deals with prescription drugs,” said David Lipschutz, associate director of the Center for Medicare Advocacy. “It signals lawmakers’ willingness to take on a very powerful lobby.”
Some provisions went into effect January 1, while others will gradually be added over time. “Collectively, these represent substantial out-of-pocket cost savings, especially for those who use expensive drugs,” said Juliette Cubanski, deputy director of the Kaiser Family Foundation’s Medicare policy program. They could also boost Medicare by reducing its expenditure.
In 2023, three major changes will be made for beneficiaries.
The first is the $35 per month insulin cap, which will affect over 1 million insulin users with Part D through Medicare Advantage plans and free-standing plans bought along traditional Medicare.
From 2007-20, beneficiaries’ aggregate out-of-pocket insulin costs quadrupled, even though the number of users only doubled. According to a Kaiser Family Foundation analysis, they spent on average $54 per month on insulin in 2020.
Average users will be able to save at least 35%. The cap is effective immediately and does not require them to pay the Part D deductible, which is $505 in 2023. Lubin is one example of Part D insulin user who paid more than $1300 out of pocket in 2020. This cap will help you save even more.
Although all Part D plans must cap the cost, they aren’t required to offer every form or brand of insulin.
“People should make extra sure their plan isn’t dropping their insulin from the formulary,” Cubanski said.
But Medicare’s open-enrollment period ended Dec. 7, and its online cost-comparison tool doesn’t reflect changes mandated by the new law, which was passed after Part D plans had already set prices.
“People might have made different choices if they’d had more information,” Cubanski said.
Medicare has now opened a one-time enrollment period that will last until the end of 2023. This will allow insulin users to change, drop, or add Part D plans. To switch to Medicare, beneficiaries will need to call the 1-800-MEDICARE phone number. The decision can be made by counselors from the State Health Insurance Assistance Programs.
The second major change is that adult vaccines now covered by Part D are free and available at pharmacies.
This will allow for greater access to the shingles vaccine — the most expensive adult vaccine — which will be especially beneficial. In 2018, the Kaiser Family Foundation reported, Part D enrollees paid $57 per dose out of pocket — and each recipient needs two doses.
The Centers for Disease Control and Prevention reported that shingles risk increases with age. However, only 46% of older adults had been vaccinated before 2020. Hispanic and Black older adults had lower rates.
“It’s disappointing because this is a spectacularly effective vaccine,” said Dr. William Schaffner, an infectious disease specialist at Vanderbilt University Medical Center. Shingrix is the current vaccine and it is approximately 90% effective. New research has shown that it can still protect you for a decade after being vaccinated.
Shingles, which is a serious disease, can also lead to nerve pain called post-herpetic nervousgia. “It varies from being annoying to being absolutely life-changing,” Schaffner said.
With Shingrix available at pharmacies without charge, “the receptivity to vaccination for older adults will increase substantially, especially among underserved populations,” he predicted.
You will also receive the hepatitis A (and hepatitis B) vaccines and Tdap (which protects against tetanus and diphtheria as well as pertussis).
The third major shift is: Drug manufacturers are now required to either pay rebates, or face stiff penalties, if drug prices under Part D or Part B increase faster than the inflation rate.
Although those rebates will go to Medicare, not to individuals, “if you’re responsible for a portion of a drug’s cost and there are limits on how much that can increase, in theory, your costs should decrease,” Lipschutz said.
Medicare will need months to determine which price increases are going to lead to rebates and what the amount of rebates. The Congressional Budget Office estimates that this provision will save Medicare $56 billion over 10 year.
Medicaid has been using a similar strategy ever since 1990. “It definitely has an effect on keeping spending in check,” Cubanski said. “The hope is that it will have the same effect for Medicare.”
In the coming years, we will see more dramatic changes.
Medicare will establish a $2,000 annual limit for out-of-pocket expenses for Part D beneficiaries in 2025. “Nowadays, a lot of drugs can cost $500 or $1,000 a month,” Cubanski said. “Or maybe you take 10 medications, and that adds up to high out-of-pocket costs.”
In 2024, a type of cap will be in effect. That’s when Medicare will eliminate the 5% copay that beneficiaries are responsible for once they pass the catastrophic expenditure threshold, effectively limiting out-of-pocket costs to about $3,250. In the following year, the $2,000 cap will be in effect. The availability of low-income subsidies will also increase.
Probably the most significant policy change is that the new law requires Medicare to begin bargaining with drug manufacturers, “the first time the federal government is not just allowed but required to negotiate prices on behalf of Medicare beneficiaries,” Cubanski said.
These negotiations will be reflected in the 2026 prices of 10 brand name drugs that are covered under Part D. They will be selected from the most expensive Medicare spenders. The drugs must have been in the marketplace for many years and there should be no biosimilar or generic competitors.
Medicare will offer negotiated prices for 15 more drugs next year, 15 more in 2028, and 20 every year thereafter. In 2028, negotiated prices will be available for select Part B drugs.
Given the thousands of covered drugs, “it’s a pretty modest proposal when it comes to restraining the cost,” Lipschutz said. Nevertheless, he added, “the pharmaceutical industry is likely to try to undermine this law — it will be looking for loopholes and escape hatches.”
The majority of Republicans in Congress voted against Inflation Reduction Act. However, they have already introduced legislation that would repeal the measures to lower drug prices. Their supporters are ready for legal challenges.
For now, however, the law is still in effect. “It can give people peace of mind,” Cubanski said. “They won’t go bankrupt or go into medical debt to afford the prescriptions they need.”
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