How the Deflation Act Affects Retirees

President Joe Biden signed the Broad Inflation Reduction Act (IRA) into law on Tuesday afternoon, bringing welcome news to many retirees.

The new law makes the most significant changes to Medicare in nearly two decades. It includes several health care provisions that lower prescription drug prices and out-of-pocket costs for millions of Americans and could potentially benefit nearly every Medicare recipient.

“The majority of Medicare beneficiaries will get better coverage under this legislation,” Mary Johnson, Social Security policy analyst for The Senior Citizens League, told Yahoo Money.

The Medicare Trustees estimated that there will be more than 65 million Americans enrolled in Medicare by the end of this year, up from 63.8 million beneficiaries at the end of 2021.

Price negotiation for high priced drugs

An estimated 5-7 million Medicare beneficiaries could see their prescription drug costs go down because of a provision that allows Medicare to negotiate prescription drug costs, according to a White House briefing.

Starting in 2026, the Centers for Medicare & Medicaid Services (CMS) will work directly with drug manufacturers to lower the price of certain high-cost prescription drugs in the Medicare program. The IRA also requires drug companies to pay a rebate to the government if prices rise faster than annual inflation based on drug use by Medicare beneficiaries.

The potential savings are significant. Prescription drugs currently account for about 20 percent of Medicare patients’ health care costs, according to a report by the Commonwealth Fund, a nonprofit research group focused on health care issues.

“I bet almost everyone knows someone who has trouble paying for their drugs,” Tricia Neuman, senior vice president at the Kaiser Family Foundation (KFF) and executive director of the Medicare policy program, said in a recent online discussion.

President Biden speaks during a signing ceremony for the Inflation Reduction Act at the White House, August 16, 2022. REUTERS/Leah Millis

President Biden speaks during a signing ceremony for the Inflation Reduction Act at the White House, August 16, 2022. REUTERS/Leah Millis

The initial target will be 10 of the most expensive drugs covered by Part D. The final drug list, however, has not been selected by the Secretary of Health and Human Services.

Between 2027 and 2029, additional drugs will be included in cost negotiations. AARP released a list of high-cost drugs that could be considered.

Covering out-of-pocket costs

Beginning in 2025, Medicare Part D’s annual out-of-pocket prescription drug costs will be capped so that no enrollee is required to pay more than $2,000 out-of-pocket annually.

This cap will affect 50 million Americans with Medicare Part D and may well protect enrollees from rising costs even more than individual drug price negotiations. This provision would directly benefit the 1.4 million Medicare patients who spend more than $2,000 on drugs each year, including people who need high-cost cancer drugs, according to the KFF analysis.

“The high rate of growth in prescription drug costs makes this one of the fastest growing costs in retirement,” Johnson said. “This is a very important change for older Americans who do not have enough resources to pay the price of their prescription drugs today.”

According to a KFF survey from March 2022, 51% of adults reported putting off medical care in the past year because of cost, 83% of adults said the cost of prescriptions was unreasonable and 26% said it was difficult to afford their medicines.

In addition, Part D premiums will be capped at 6% annually from 2024 to 2029. And starting in 2024, the IRA eliminates the 5% coinsurance requirement above the Medicare Part D “catastrophic” limit.

Insulin price guard rail

Pensioners with diabetes have been hit with the escalating price of insulin in recent years, but those days may soon be over.

Next year, 3.3 million Medicare Part D beneficiaries with diabetes will benefit from a guarantee that insulin copayments will be capped at $35 for a month’s supply. Among Medicare Part D insulin users not receiving low-income subsidies, the average out-of-pocket cost per prescription for all insulin products was $54 per month in 2020, up from $38.85 in 2007, a 39% increase, according to KFF exhibition.

Among all insulin products available in 2020, spending per prescription each month by enrollees ranged from $16 to $116.

Total out-of-pocket spending by people with Medicare Part D for insulin products quadrupled between 2007 and 2020, rising from $236 million to $1.03 billion. Meanwhile, the number of Medicare Part D enrollees using insulin doubled during those years, from 1.6 million to 3.3 million beneficiaries.

Travis Paulson examines the insulin medication he keeps in his refrigerator on January 16, 2020 in Eveleth, Minnesota.  (Photo by Kerem Yucel/AFP)

Travis Paulson examines the insulin medication he keeps in his refrigerator on January 16, 2020 in Eveleth, Minnesota. (Photo by Kerem Yucel/AFP)

Free vaccines

Starting in 2023, seniors will no longer have to pay cost-sharing for adult vaccines covered by Medicare Part D and Medicaid recommended for adults by the Advisory Committee on Immunization Practices (ACIP).

Coverage of vaccines ranging from flu to pneumonia to shingles for adults was optional, with about half the states providing coverage and some cost-sharing, according to KFF data.

Low income subsidies

The Inflation Reduction Act also expands eligibility for Extra Help, the low-income federal subsidy program that offers help paying monthly Part D premiums, annual deductibles and co-pays related to prescription drug coverage Medicare.

Starting in 2024, the income limit for full Extra Help increases from 135% to 150% of the federal poverty level. This year, it’s available for an individual with an income of about $20,000 or about $27,000 for a couple.

Currently, about 500,000 people on Medicare have incomes between 135-150% of the poverty level and receive a partial benefit. Under the new law, they will be entitled to the full amount if they meet the other criteria.

Reality check

The health benefits of the new law are encouraging, and while it is a step forward, most of the provisions will not take effect for several years.

“While it’s certainly very good news for retirees, it’s not as big a deal as it could be,” Matthew Rutledge, a researcher at the Center for Retirement Research at Boston College, told Yahoo Money. “But it’s definitely better than what people are dealing with right now, especially with prescription drugs.”

Retiree Al Berliner and Michaele Gagnier greet each other at Spanish Springs Square in The Villages, Florida, March 16, 2020. REUTERS/Yana Paskova

Retiree Al Berliner and Michaele Gagnier greet each other at Spanish Springs Square in The Villages, Florida, March 16, 2020. REUTERS/Yana Paskova

One concern, however, is that insurers, drug companies and health care providers could potentially raise costs for other drugs and services or raise Part D premiums, he said.

“While it’s a potential game changer, it’s less clear what the impact on pricing will be from Medicare’s ability to negotiate drug prices,” said Philip Moeller, a Medicare and Social Security expert and lead author of the book series. Get What’s Yours’ for social. Security, Medicare and health care, he told Yahoo Money.

“This IRA provision will not take effect for several years and will only apply to a small number of drugs when it does,” he added. “Medicare benefits could be at the expense of people with private employer health insurance. They are not protected by the new law, and drug companies may seek higher prices in employer plans to offset lower profits from their Medicare plans.”

For now, enjoy the historic moment.

“The benefits of the new law will have a positive impact for many retirees,” Moeller said. “These provisions will not only save a lot of money, but provide the kind of price stability that is so important to people on fixed incomes.”

Kerry is a Senior Writer and Senior Reporter at Yahoo Money. Follow her on Twitter @kerryhannon

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