January 2025: 

The MLO Minute: “Medicare’s $2,000 Drug Costs Cap Takes Effect” 

By Dennis McAndrews, Esq., Founder and Managing Partner Emeritus — 

Starting Jan. 1, 2025, millions of Americans who get their prescription drugs through Medicare will get a financial break when a $2,000 out-of-pocket spending cap on medications becomes effective.

 

The yearly price cap was created by the Inflation Reduction Act was signed into law in 2022, with that legislation including provisions reducing drug costs for seniors as well as other Americans. While some other rules have already kicked in, such as a $35 price cap on insulin for seniors, Medicare’s $2,000 drug cap will become effective this year.

 

The out-of-pocket cost cap could be a “game changer” for many seniors, said Ryan Ramsey, the associate director of health coverage and benefits at the National Council on Aging (NCOA). In the first year of the cap, about 3.2 million Medicare recipients are likely to see lower costs due to the new rule, particularly seniors who take multiple medications or have high-cost prescriptions, according to an analysis from AARP.

 

Before the law, there was no out-of-pocket cap for Medicare’s Part D, the section that covers prescription drugs, which left seniors at financial risk. “Having a cap where somebody can know, ‘Hey, this is what my maximum out of pocket will be for my medication,’ that will be an enormous deal,” Ramsey noted.

 

The new $2,000 out-of-pocket cap on prescription drugs covers everyone with a Medicare Part D plan, which is the section of Medicare that covers most pharmaceutical products. The annual new cap also includes people with drug plans through Medicare Advantage, which are health plans offered by private insurers. There are more than 50 million older Americans who have either Part D or prescription plans through Medicare Advantage, according to health policy site KFF.

 

The out-of-pocket spending limit is going to be “a big relief to many seniors who might be on expensive medications, for example, for cancer,” Dr. Céline Gounder, CBS News medical contributor and editor-at-large for public health at KFF Health News, shared on “CBS Mornings.”

 

Will Medicare’s so-called “donut hole” still exist? 

 

No, according to Medicare. “Because of the prescription drug law, the coverage gap ends on Dec. 31, 2024,” its website states. The so-called “donut hole,” or coverage gap, has affected almost all prescription plans. In the past, seniors could enter the donut hole once they and their plans had spent more than $5,030 on drug costs, at which point they were on the hook for out-of-pocket drug costs until they hit $8,000 in spending. Catastrophic coverage would kick in above that amount and cover additional spending.

 

Which prescription drugs are covered by the Medicare cap?

 

The new $2,000 cap includes all the prescriptions in a Medicare recipient’s Plan D formulary (the plan’s list of covered drugs). If a drug is not on your formulary, it won’t be covered by the $2,000 cap. In other cases, such as for new medications or drugs for which there aren’t alternatives, Medicare enrollees can ask for a drug exception, which can be granted if deemed medically necessary, according to Medicare.

 

Because formularies can change their coverage each year, and people’s prescriptions can also vary over time, it’s important to check your Part D plan during open enrollment each year. Open enrollment typically occurs between mid-October to early December.

 

The cap will automatically be applied to your Part D plan, and the plan will track your spending. Once you hit $2,000, the new cap will go into effect and cover your eligible drug costs beyond that amount. The cap doesn’t include coverage for drugs outside of a Part D plan, which means that it also doesn’t apply to pharmaceuticals covered by Medicare Part B, which include drugs you typically wouldn’t give to yourself, such as injectables at a medical office. It also doesn’t cover Part D premiums. 

 

Sources: CBS News and Medicare