Medicare Begins to Rein In Drug Costs for Older Americans

The third major change: When prices for drugs covered under Part D, and some under Part B, increase faster than the inflation rate, the law now requires drug manufacturers to pay rebates or face stiff penalties.

Although those rebates will go to Medicare, not to individuals, “if you’re responsible for a portion of a drug’s cost and there are limits on how much that can increase, in theory your costs should decrease,” Mr. Lipschutz said.

It will take months for Medicare to determine which price increases will prompt rebates and how much the rebates will amount to. But the Congressional Budget Office has estimated that this provision will save Medicare more than $56 billion over 10 years.

Medicaid has employed a similar strategy since 1990. “It definitely has an effect on keeping spending in check,” Dr. Cubanski said. “The hope is that it will have the same effect for Medicare.”

The changes in subsequent years will be more dramatic.

In 2025, Medicare will set a $2,000 annual limit on out-of-pocket spending for Part D beneficiaries. “Nowadays, a lot of drugs can cost $500 or $1,000 a month,” Dr. Cubanski said. “Or maybe you take 10 medications, and that adds up to high out-of-pocket costs.”

A kind of cap will take effect even sooner, in 2024. That’s when Medicare will eliminate the 5 percent co-pay that beneficiaries are responsible for once they pass the catastrophic expenditure threshold, effectively limiting out-of-pocket costs to about $3,250. The $2,000 cap takes hold the following year. Access to low-income subsidies will broaden, as well.

Probably the most significant policy change is that the new law requires Medicare to begin bargaining with drug manufacturers, “the first time the federal government is not just allowed but required to negotiate prices on behalf of Medicare beneficiaries,” Dr. Cubanski said.