Starting Jan. 1, older adults on Medicare will spend no more than $2,000 a year on prescription drugs when a new price cap on out-of-pocket payments from the Inflation Reduction Act goes into effect.
Experts say the change is expected to provide major relief for cancer patients who often struggle to afford their medications due to the high cost of cancer drugs.
Diana DiVito, of Canonsburg, Pennsylvania, recalls the shock she felt after she got her first co-payment for the cancer drug Imbruvica in 2016.
The 83-year-old was diagnosed with chronic lymphocytic leukemia, a type of blood cancer that begins in the bone marrow, in 2005. She underwent treatment, including chemotherapy, and went into remission. When she had a recurrence, she started taking Imbruvica.
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By 2021, DiVito had spent $56,000 out-of-pocket on the daily pill.
“The co-pays blew me away,” said DiVito, who added she’s been on limited income since her husband died in 2023. “It started out the first year was $8,500 out of pocket, and then it went up about $1,000 every year after that.”
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The new price cap will apply to all prescription drugs under Medicare Part D; it won’t apply to drugs given to patients in the hospital or other health care settings, such as chemotherapy or anesthesia. Medicare recipients will also have the new option of spreading their payments out over the course of the year, rather than paying a large co-payment all at once.
Before the change, people on Medicare typically had to spend $7,000 or more out of pocket on their prescription drugs before they qualified for so-called catastrophic coverage, when insurance kicks in and covers most of the drug’s cost. Under this coverage, patients are charged a small co-payment or a percentage of a drug’s cost, usually 5%.
Typically, DiVito would hit catastrophic coverage almost immediately after her plan reset each January. While that helped with costs for most of the year, it meant the first few prescriptions she filled were financially painful.
Anticipating the cap next month, DiVito said she has much less stress and is spending a little more freely.
“I’m being a little more generous with my grandchildren this Christmas,” she said.
Millions expected to benefit
The Inflation Reduction Act’s $2,000 price cap comes after years of public outcry about the soaring cost of prescription drugs, including cancer medications, in the United States.
The law introduced the cap gradually, starting with a cap of $3,250 on out-of-pocket spending on prescription drugs in 2024.
More than 65 million people, mainly older adults, are enrolled in Medicare. A study published in September in JAMA Network Open found that annual out-of-pocket costs for cancer medications averaged $11,284 for Medicare Part D beneficiaries in 2023. (Part D refers to coverage for prescription drugs.)
A separate report from the nonprofit group AARP found that 3.2 million Medicare recipients are expected to see savings from the out-of-pocket cap in 2025. By 2029, the number is expected to increase to 4.1 million enrollees. The report didn’t break down savings for people with certain conditions, such as cancer. However, research shows about 60% of cancer cases occur in adults 65 and older.
On average, 1.4 million enrollees who reach the out-of-pocket cap from 2025 to 2029 are estimated to see annual savings of $1,000 or more, the AARP report found, and just over 420,000 will see savings of more than $3,000.
Mary and Jim Scott of Oregon are among the Medicare enrollees expecting to see savings next year.
In 2023, the couple’s out-of-pocket prescription drug expenses skyrocketed to $8,000, up from their previous annual average of $240. It was a difficult year during which Jim, 83, faced multiple serious health issues, including congestive heart failure, an acute kidney injury and bladder cancer.
The new cap won’t apply to drugs given in a health care setting (these are covered under Medicare Part B), meaning Jim will still be responsible for the costs of chemotherapy not covered by his insurance.
Still, Mary, 73, said the change offers a sense of relief after more than a year of struggling with the soaring costs of cancer care, making it easier for the couple to stay afloat and focus on what matters most: Jim’s health, their grandchildren, their dog and their garden.
“We’re not planning any amazing trips. We’re still needing to live our low-key lives,” Mary said. “But by the end of the summer, maybe we’ll be able to put up some new siding on the house and do a few things that we’ve deferred.”
Living on fixed incomes
Juliette Cubanski, deputy director of the Medicare policy program at KFF, a nonprofit group that researches health policy issues, noted that in the nearly 20 years since Medicare Part D was introduced, there has never been an annual cap on out-of-pocket costs.
She co-wrote an analysis that found about 1.5 million people on Medicare had out-of-pocket prescription drug costs exceeding $2,000 in 2021 and would have benefited from the cap. Of the 1.5 million, about 200,000 Medicare enrollees spent $5,000 or more for their prescriptions that year.
“So, for people who need really expensive drugs or who take a lot of medications where the monthly cost adds up, they may have had to pay several thousands of dollars out of pocket each year,” she said.
Many people on Medicare are retired and live on fixed incomes, Cubanski said, meaning people often go deep into debt or even bankrupt.
Arthur Caplan, the head of the division of medical ethics at NYU Langone Medical Center in New York City, said that’s especially true for cancer patients: A survey from the American Cancer Society’s Cancer Action Network published in May found that nearly half of cancer patients have medical debt, despite most being insured.
“We have many emerging treatments for cancer,” Caplan said. “They are hugely expensive.”
Cubanski said that even for those who don’t spend more than $2,000 a year, the cap is still important.
“The unfortunate truth is we’re all one scary diagnosis away from needing an expensive drug,” she said.
Is $2,000 a year still too high?
George Valentine, 73, of Philadelphia, said he was at his annual physical in 2002 when his doctor noticed something unusual in his test results. Further testing revealed he had chronic lymphocytic leukemia.
The medications he needed came with a hefty price tag — around $14,000 a month. While he was working in the information technology industry, this wasn’t a major issue because his job-based health insurance included an out-of-pocket maximum, which he hit every year.
However, when Valentine retired in 2019, he discovered a significant gap in Medicare’s coverage. Unlike his previous insurance, Medicare had no out-of-pocket spending limit, leaving him responsible for 5% of his medication costs after reaching the catastrophic coverage phase.
“Five percent of $14,000 is a lot of money,” he said. “I would get to the catastrophic phase by February in any given year, and for the rest of the year I had this burden of $700 or around there every month and it never ended.”
Valentine, now an advocate for the PAN Foundation, a patient financial assistance group for people with life-threatening chronic conditions, said he would prefer the out-of-pocket cap in the New Year to be “zero.”
Still, he added, with the $2,000 cap he can now at least sleep at night.
“All that matters is when I hit $2,000, I’m done,” he said.
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