Key Takeaways

• Beginning in 2024, new Medicare Part D changes went into effect.
• The 5% coinsurance requirement for Part D beneficiaries in catastrophic coverage was removed; this essentially caps out-of-pocket spending at around $3,300 for 2024.
• In 2025, a new $2,000 out-of-pocket spending limit begins for Part D beneficiaries
• These changes may result in an increase in Part D premiums, although more legislation took effect in 2024 in an attempt to limit drastic increases overall

To alleviate the rising costs of prescription drugs for Medicare beneficiaries, the Inflation Reduction Act in 2022 was developed to ease the financial burden on individuals through multiple avenues, including new Medicare Part D changes. While some of those provisions — for instance, the government directly negotiating prices with manufacturers for certain medications, or the $35 cap on insulin — are well known, one piece of legislation that went into effect in 2024, aimed to drastically lower total costs for a key group of Part D (prescription drug plan) beneficiaries, went under-the-radar.

New Medicare Part D Changes: A Cap on Catastrophic Coverage

The Inflation Reduction Act removes the 5% coinsurance requirement once an individual reaches the catastrophic coverage threshold. This effectively caps out-of-pocket costs at $3,250, per analysis done by the Kaiser Family Foundation (KFF). This cap goes a step further beginning in 2025, when a $2,000 out-of-pocket spending limit is established, which is subject to rise each year based on the per-capita cost of Medicare Part D. 

In addition, in 2025, individuals will have the ability to pay out-of-pocket costs in monthly amounts, which would help beneficiaries who know they will hit the $2,000 out-of-pocket limit budget accordingly. 

According to a poll conducted by KFF in Nov. 2023, just 23% of respondents were aware that the Inflation Reduction Act contained provisions to lower and cap out-of-pocket expenses for prescription drug plans.

RELATED: Do I Need a Medicare Prescription Drug Plan

Who Is Most Affected By These Changes?

Keep in mind, only a small portion of Medicare Part D enrollees actually reach catastrophic coverage each year. Between 2010 and 2019, the number of individuals who reached catastrophic coverage grew from 400,000 to 1.5 million; the 2019 figure represents just 4.4% of all Part D enrollees. However, this group is often marked by health conditions that require more elaborate treatment; and, concurrently, pricier medication.

KFF gives an example of individuals suffering from prostate cancer, who use the medication Xtandi for treatment. In their research, these individuals would save over $8,000 in 2024, compared to 2023, because of the removal of the 5% coinsurance requirement in catastrophic coverage.

Once the cap is lowered to $2,000 beginning in 2025, even more beneficiaries may see savings over time: Since 2007, 6.8 million Medicare Part D beneficiaries have paid $2,000 or more in out-of-pocket expenses.

Future Impacts of Medicare Part D Out-Of-Pocket Changes

Despite the roll-out of new Medicare Part D changes from the Inflation Reduction Act aimed to lower costs for Medicare Part D beneficiaries, there have still been price increases for prescription drugs. USA Today reported that pharmaceutical companies raised prices on over 900 prescription drugs, attributing the increase to the drug-price negotiations between the federal government and drug manufacturers

USA Today attributed a driving force for these increases were the impending drug-price negotiations between the federal government and drug manufacturers. 

Given that, KFF says “it is possible” that Part D enrollees could face higher premiums, as plan sponsors would be responsible for more drug costs during the catastrophic coverage phase. However, the Inflation Reduction Act also includes provisions to stabilize Part D premiums; beginning in 2024, and continuing through 2029, there is a mechanism in place to limit the average Part D premium increase across most plans to 6%.