According to a report released Thursday by AARP, most Medicare patients who reach the newly implemented $2,000 cap on out-of-pocket prescription drug spending could experience significant savings, even with changes in premiums.
The cap, which took effect at the beginning of this year, is expected to provide substantial relief to older adults enrolled in Medicare who struggle with the high costs of medications for conditions such as cancer, rheumatoid arthritis, and other severe illnesses.
On average, U.S. patients, including seniors, pay two to three times more for prescription drugs compared to people in other developed countries.
This new limit is one of the major provisions of President Joe Biden’s 2022 Inflation Reduction Act, which aims to address soaring drug costs. Other measures in the legislation include a $35 monthly cap on insulin and the introduction of Medicare drug price negotiations with manufacturers.
The report revealed that 94% of over one million Medicare Part D enrollees expected to hit the cap in 2025 will benefit from reduced out-of-pocket costs, including premiums and cost-sharing.
These patients are projected to save an average of $2,474, representing a 48% decrease in their overall out-of-pocket expenses. The analysis was based on plan enrollment, premium data, and other relevant information.
The one million enrollees excluded those receiving certain low-income subsidies or covered under employer waiver plans. Among this group, 62% are expected to save more than $1,000 annually in 2025, while 12% could save over $5,000. However, 6% of Part D enrollees projected to reach the cap may face higher out-of-pocket costs, averaging an additional $268 in 2025.
In 33 states and Washington, D.C., at least 95% of Part D enrollees who reach the cap are expected to see lower total out-of-pocket costs in 2025.
“When you’re able to provide these types of savings, it frees up funds for other critical needs, like food or rent, which may have required trade-offs before,” said Leigh Purvis, prescription drug policy principal at AARP. She emphasized that the impact is especially significant for Medicare beneficiaries, who have a median annual income of about $36,000.
These savings will be realized despite adjustments to Part D premiums in 2025, AARP noted. Purvis clarified that the cost reductions associated with the first 10 drugs selected for Medicare price negotiations will not take effect until 2026, leading to some premium increases in the interim.
Critics have attempted to link these premium increases to the Inflation Reduction Act, but the report highlighted that most patients reaching the $2,000 cap will see savings that far outweigh any premium hikes.
The long-term impact of the changes is expected to grow, with new negotiated drug prices going into effect in 2026. “The Medicare program will save a significant amount of money, and these savings will benefit a wide range of people in various ways,” Purvis explained.
A separate AARP report estimated that 3.2 million Medicare beneficiaries will benefit from the out-of-pocket cap in 2025, with this number projected to rise to 4.1 million by 2029.
Currently, Medicare serves approximately 66 million people in the U.S., with 50.5 million enrolled in Part D plans, according to 2023 data from the health policy research organization KFF.
The $2,000 cap applies to all prescription drugs covered under Medicare Part D but excludes medications administered in hospitals or other healthcare settings, such as anesthesia or chemotherapy.
Previously, Medicare beneficiaries had to spend more than $7,000 on prescription drugs out of pocket before qualifying for catastrophic coverage. Under this system, insurance covered most of the drug cost, but patients were still responsible for a co-payment or a percentage—typically 5%—of the medication’s cost.