The cap, which should benefit millions of Americans, is part of a multiyear plan to reduce prescription drug costs for Medicare beneficiaries.
Medicare recipients will pay no more than $2,000 annually for covered prescription drugs starting Jan. 1, a change that could potentially benefit millions of older Americans.
According to health policy research group KFF, 5 million Medicare Part D enrollees faced out-of-pocket drug costs of $2,000 or more in at least one year between 2012 and 2021.
A total of 6.8 million Part D enrollees have paid $2,000 or more out of pocket in at least one year since the program began in 2007.
Eliminating the Donut Hole
Until now, enrollees in Medicare Part D, which pays for prescription drugs, had a temporary gap in coverage, sometimes called a donut hole.
Under the standard Part D benefit in 2024, beneficiaries who spent $5,030 overall on covered prescription drugs entered a “coverage gap” until their out-of-pocket spending reached $8,000. At that point, catastrophic coverage would begin, limiting total out-of-pocket expenses to $3,500.
Starting in 2025, Part D enrollees who reach $2,000 in out-of-pocket expenses will qualify for catastrophic coverage with no further out-of-pocket expenses for covered drugs for the remainder of the calendar year.
President Joe Biden took credit for the plan, which was authorized by the Inflation Reduction Act of 2022 (IRA).
“I believe that health care should be a right—not a privilege—and throughout my presidency, I have advanced that goal,” Biden said in a Dec. 31 statement. “Before I took office, people with Medicare who took expensive drugs could face a crushing burden, paying $10,000 a year or more in copays for the drugs they need to stay alive.”
The $2,000 cap is one of several provisions of the IRA to bring down prescription drug costs for Medicare beneficiaries and reduce spending by the government.
Starting in 2023, the IRA required pharmaceutical companies to rebate payments to Medicare if drug prices rise faster than inflation, limited insulin costs to $35 per month for Medicare beneficiaries, and eliminated cost-sharing for adult vaccines.
