When President Biden signed the Inflation Reduction Act of 2022, the press touted how it would “improve the lives of millions of older Americans” by lowering the cost of prescription drugs. (It is also expected to lower what the government spends on medications.)

The cost of healthcare is vital to retirees. An August 2022 study by the Boston College Center for Retirement Research looked at how much of the median Social Security check is spent on out-of-pocket costs, including premiums, coinsurance and other uncovered expenses, but not long-term care. The answer? 25%. And 12% of the seniors’ total median income is spent on medical costs.

Over 64 million people are enrolled in Medicare and about 50 million turn to a Medicare Part D prescription drug plan for relief. Despite all the fanfare, the new law will take several years to be rolled out and will benefit only a few seniors at first. But it does promise better protection in the future when a retiree might face high drug costs.

Let’s look at who might actually benefit and, more importantly, starting when.

2023: Out-of-pocket insulin costs will be capped for those with diabetes

While one-third of Medicare’s 64 million beneficiaries have diabetes, about 3.3 million use insulin. The price of insulin has increased markedly over the years, so the Centers for Medicare & Medicaid Services (CMS) started a 5-year test in 2021 to find a solution. This voluntary Part D Senior Savings Model gives Medicare beneficiaries access to insulin at a predictable $35 or less per month. The Kaiser Family Foundation estimates that people with diabetes can save $446 a year in out-of-pocket costs for insulin.

But the new bill didn’t wait for the results of the CMS test. Instead, starting in 2023, the new Inflation Reduction Act will limit to $35 the monthly cost of insulin products under Medicare Part D plans or when furnished by Medicare Part B as “durable medical equipment.”

2023: Adult vaccines will no longer have copays

Flu and Covid-19 vaccines are usually free, but others have not been, including shingles shots that cost up to $200. In 2020, 4.1 million Medicare beneficiaries with Part D coverage received vaccines, the majority for shingles prevention.

Thanks to the Inflation Reduction Act, as of 2023, all vaccines covered by Medicare Part D will have no copay.

Adult vaccines will also be more readily available through Medicaid and the Children’s Health Insurance Program (CHIP).

2023: Drug manufacturers can’t raise prices more than the inflation rate

Starting in 2023, drug manufacturers will have to pay the federal government a rebate if prices for Medicare-covered drugs increase faster than the inflation rate. However, the benefit doesn’t flow directly to Part D enrollees. Instead, it should help limit annual drug price increases for Medicare beneficiaries and possibly influence future Part D premiums.

2024: Extra Help subsidies will be available to more people

Medicare offers Extra Help subsidies to low-income beneficiaries to help cover Part D costs. But for some, the subsidies only covered part of the Part D premium, standard deductible and coinsurance, and they left a modest copay for drugs purchased above the catastrophic threshold.

The new bill will expand eligibility in 2024. Medicare beneficiaries with incomes between 135% and 150% of the FPL (Federal Poverty Level) may now be eligible for the full low-income subsidy. They will pay no Part D premium or deductible and only have modest copays before reaching the catastrophic threshold, then no more cost-sharing for the rest of the year.

According to the Kaiser Family Foundation, 400,000 Medicare beneficiaries received only partial benefits in 2020. With full benefits in 2024, they will save an average of $300 per year.

2024: Part D annual premium increases will be capped

Starting in 2024 and going until 2030, the bill will cap the annual increase of one element of the Part D premium: the “national base beneficiary premium.” It can only go up by 6% per year, which may slow the growth of Part D premiums.

2024: The 5% coinsurance fee will be removed from the catastrophic phase.

Participants in Medicare Part D prescription drug plans pay different percentages as coinsurance as their spending passes through different phases. For example, in 2022, when spending (which includes the enrollee’s out-of-pocket payments plus some manufacturer discounts) reaches $7,050, the “catastrophic coverage” phase has been reached. After that, enrollees only pay a coinsurance of 5% for covered drugs until the end of that year.

The bill will do away with the 5% coinsurance starting in 2024. However, because a $2,000 cap will go into effect the following year (2025), the benefit is only relevant in 2024.

2025: Out-of-pocket spending for drugs will have a $2,000 cap

Some beneficiaries have had no out-of-pocket spending limit on prescription drugs with Medicare Part D. For example, the Kaiser Family Foundation estimates that 1.4 million Medicare beneficiaries spend more than $2,000 each year.

The bill will place a $2,000 cap on the amount Medicare beneficiaries spend on prescription drugs starting in 2025. (The cap will go up annually according to Medicare’s spending on covered drugs.) Once the cap is reached, the enrollee will pay no additional copays or coinsurance for that year. Particularly for seniors dependent on expensive drug treatments – such as for hepatitis C, multiple sclerosis or cancer – the savings could reach thousands of dollars yearly.

2026: Medicare will negotiate the price it pays for drugs

The federal government has never let Medicare negotiate drug purchase prices with manufacturers. With this new law, it finally can. But unfortunately, the impact will not affect all drugs. At first, it will only include some costly, single-source drugs without generic or biosimilar competitors.

More importantly, the impact only starts in 2026 with ten such drugs covered by Medicare Part D. In 2027, there will be 15 more Part D drugs, and in 2028, 15 Part B and Part D drugs. Then, in 2029 and beyond, another 20 Part B and Part D drugs will undergo price negotiations each year.

Another change is that all Medicare prescription drug plans must include the negotiated drugs on their formularies. Therefore, if you are prescribed one of such drugs, your plan must cover it.

In addition to any direct savings enjoyed by Medicare recipients who use the affected drugs, Medicare is expected to save more than $100 billion over the next ten years. These savings could eventually flow down to retirees as lower Medicare premiums.

Medicare is a complex area and by no means do I consider myself an expert here so it’s best to consult someone who specializes in it. It’s always fascinating what gets buried in the bills that Congress passes. I’m still trying to figure out how this applies to reducing inflation. If you figure it out, will you let me know?

Bill Harris is a Retirement Management Advisor® (RMA®), a CERTIFIED FINANCIAL PLANNER™ practitioner (CFP®), a Master Elite Ed Slott Advisor, and author of ‘Inheriting Your Spouse’s IRA’. He is President of WH Cornerstone Investments, a financial advisory firm located in Kingston, MA. Learn more at https://whcornerstone.com/.

This article originally appeared in Old Colony Memorial.

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