The third big change: When prices for drugs covered by Part D, and some under Part B, rise faster than the rate of inflation, the law now requires drug companies to pay rebates or face severe penalties.
While those rebates go to Medicare, not individuals, “if you’re responsible for a portion of the cost of a drug and there are limits to how much that can go up, in theory your costs should go down,” Mr. Lipschutz said.
It will take months for Medicare to determine which price increases will trigger 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 had a similar strategy since 1990. “It certainly has an effect on controlling spending,” said Dr. Cubanski. “The hope is that it will have the same effect for Medicare.”
The changes in the following years will be more dramatic.
By 2025, Medicare sets a $2,000 annual limit on out-of-pocket expenses for Part D beneficiaries. “Today, many medications cost $500 or $1,000 per month,” said Dr. Cubanski. “Or maybe you take 10 drugs, and that adds up to a high out-of-pocket cost.”
Some kind of cap will go into effect even earlier, in 2024. That’s when Medicare will scrap the 5 percent co-pay that beneficiaries are responsible for once they cross the catastrophic spending threshold, effectively limiting out-of-pocket costs to about $3,250. The $2,000 limit goes into effect the following year. Access to low-income subsidies will also be widened.
Probably the most significant policy change is that the new law requires Medicare to begin negotiating with drug manufacturers, “the first time the federal government is not only allowed, but required, to negotiate prices on behalf of Medicare beneficiaries,” said Dr. Cubanski.
