How the Inflation Reduction Act impacts retirees

How the Inflation Reduction Act impacts retirees

President Joe Biden signed the sweeping Inflation Reduction Act (IRA) on Tuesday afternoon, bringing good news to many retirees.

The new law makes the most important changes to Medicare in nearly two decades. It includes several health care provisions that reduce prescription drug prices and direct costs for millions of Americans and can benefit nearly all Medicare beneficiaries.

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

Medicare trustees have 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.

Negotiating prices for high-priced drugs

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

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

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

“I bet pretty much everyone knows someone who is struggling to pay for their medication,” Tricia Neuman, senior vice president of the Kaiser Family Foundation (KFF) and executive director of Medicare’s policy program, said in a recent web discussion.

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

President Biden speaks during an Inflation Reduction Act signing ceremony at the White House, Aug. 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, was not selected by the Department of Health and Human Services.

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

Limiting direct costs

Beginning in 2025, annual Medicare Part D prescription drug disbursements will be capped so that no enrollee will be required to pay more than $2,000 out of pocket per year.

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

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

According to a March 2022 KFF survey, 51% of adults reported delaying medical care in the past year due to costs, 83% of adults said the cost of prescriptions was unreasonable, and 26% said it was difficult to pay their bills. medicines.

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

insulin price guardrail

Retirees with diabetes have been hit by the rising price of insulin in recent years, but those days could soon be over.

Next year, 3.3 million Medicare Part D beneficiaries with diabetes will benefit from a guarantee that copayments for insulin will be limited to $35 for a month’s supply. Among Medicare Part D insulin users who do not receive low-income subsidies, average prescription costs across all insulin products were $54 per month in 2020, up from $38.85 in 2007, an increase of 39%, according to a study report by KFF.

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

People’s total spending on Medicare Part D for insulin products quadrupled between 2007 and 2020, increasing from $236 million to $1.03 billion. Meanwhile, the number of Medicare Part D enrollees using insulin has doubled over those years, from 1.6 million to 3.3 million beneficiaries.

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

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

free vaccines

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

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

Low Income Grants

The Inflation Reduction Act also expands eligibility for Extra Help, the federal low-income subsidy program, which offers assistance with paying your monthly Part D premiums, annual deductibles, and copayments related to Medicare prescription drug coverage.

Starting in 2024, the income threshold for full Extra Help increases from 135% to 150% of the federal poverty level. This year, it’s available for a single person with an income of around $20,000 or around $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 would be eligible for the full amount as long as they meet the other criteria.

A reality check

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

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

Retired Al Berliner and Michaele Gagnier shake hands at Spanish Springs Town Square in The Villages, Florida, March 16, 2020. REUTERS/Yana Paskova

Retired Al Berliner and Michaele Gagnier shake hands at Spanish Springs Town Square in The Villages, Florida, March 16, 2020. REUTERS/Yana Paskova

One concern, however, is that insurers, pharmaceutical companies and healthcare providers could presumably increase the costs of other drugs and services or raise Part D premiums, he said.

“While this is a potential game-changer, it is less clear what the price consequences of Medicare’s ability to negotiate drug prices will be,” Philip Moeller, Medicare and Social Security expert and lead author of the “Get What’s Yours” book series on Social Security, Medicare and Health Care, told Yahoo Money.

“This IRA provision will not go into effect for several years and will only apply to a small number of drugs when it does,” he added. “Medicare benefits can come at the expense of people with private employer health insurance. They are not protected under the new law, and pharmaceutical companies may be looking for higher prices on employers’ plans to offset lower profits on 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, they will also provide the kind of price stability that is so important for people on fixed incomes.”

Kerry is a senior columnist and senior reporter for Yahoo Money. Follow her on Twitter @kerryhannon

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