Medicare and the Inflation Reduction Act: Everything You Need to Know

• The Inflation Reduction Act aims to lower prescription drug costs for Medicare beneficiaries, among other goals. 
• Most of the act’s mandates impact Medicare Part D plans, including a new $35 monthly cap on insulin and no out-of-pocket costs for recommended adult vaccines. 
• The Inflation Reduction Act creates cost-saving opportunities for Americans over 65 and others covered by Medicare, but it isn’t the only way to save on drug costs. 

Many Medicare beneficiaries experience financial anxiety over healthcare and prescription drug costs. To alleviate some financial concerns, the U.S. government passed the Inflation Reduction Act in 2022. This act gave the Medicare program more bargaining power with drug companies, lowered prescription drug prices, and allowed for new rebates and payment options.

While this act has been successful so far, the Center for Medicare and Medicaid Services (CMS) is continuing to roll out new policies related to this act, making it difficult to keep up with the changes. Here’s everything you should know about the Medicare Inflation Reduction Act, including ways to save thanks to these new policies. 

While Medicare was designed to make healthcare affordable to Americans over 65 years old and others who meet certain conditions, many beneficiaries still financially struggle to purchase necessary prescriptions and healthcare services. To combat this, the federal government passed the Medicare Inflation Reduction Act in 2022. 

Thanks to this act, beneficiaries now have more ways to save on healthcare costs, and the CMS has more negotiating power with drug manufacturers, with the goal of reducing Medicare drug spending. The act also expanded some Medicaid services and reformed marketplace plans, saving over $800 annually for those who get their health through the Affordable Care Marketplace. 

While the Inflation Reduction Act has wide-reaching impacts, here are the five key changes to Medicare.

1: Medicare Part D Changes

Medicare Part D is an optional plan that helps cover prescription drug costs. It’s not required of all Medicare beneficiaries, and someone must opt into a Medicare Part D prescription drug plan. While Part D does lower drug costs, there are still some out-of-pocket costs that individuals may incur. However, thanks to the Inflation Reduction Act (IRA), many of these out-of-pocket costs have been reduced or made more accessible to pay off. Here are three ways the IRA positively impacted Part D coverage:

• Lowered Catastrophic Cap: Part D has an out-of-pocket cap, referred to as the catastrophic coverage threshold or catastrophic phase (the ​“donut hole” phase was eliminated in January 2025). Once someone is in the catastrophic phase, they don’t have to pay for any prescriptions covered under the Part D formulary. Thanks to the Inflation Reduction Act, the Part D cap for 2025 was lowered to $2,000 as opposed to the previous $8,000. 
• Expanded Eligibility for Low-Income Subsidy Program: If the $2,000 cap and monthly payments don’t work with someone’s budget, individuals can apply for the low-income subsidy program The Inflation Reduction Act also expanded who meets the program’s eligibility requirements. 
• Introduced a Prescription Payment Plan: Additionally, the act introduced a Medicare Prescription Payment Plan where beneficiaries can pay for drugs in monthly installments instead of all at once, making it easier to budget for medications.
• Part D Premium Increases Limited: Under the IRA, starting in 2024 through 2030, the premium for Part D coverage can’t increase by more than 6% per year (in 2026, beneficiaries pay 38.99 per month).

While this change is positive overall, some providers may respond with changes to utilization management (the process of vetting treatment options to make sure care is appropriate). This could lead to fewer recommendations for high-cost drugs, with providers instead preferring to prescribe lower-cost ones to stay within budget. 

2: Insulin Prices 

The Inflation Reduction Act introduced a $ 35-per-month supply cap on insulin cost sharing, which applies to both preferred and non-preferred pharmacies.

It doesn’t contribute to the out-of-pocket Part D costs, and someone doesn’t have to meet the Part D deductible to benefit.

3: Vaccine Coverage

The IRA ensures that no one will pay out-of-pocket costs for adult vaccines recommended by the ACIP (Advisory Committee on Immunization Practices). Recommended vaccines covered include, but aren’t limited to:

• COVID-19 vaccine
• Flu shots
• Shingles vaccine
• RSV vaccine (for those 75 or older or when recommended by a doctor)
• Pneumonia
• Hepatitis B (if someone has a high or intermediate risk)

4: Medicare Drug Price Negotiation Changes

To strengthen Medicare’s prescription drug benefit, the law establishes Medicare’s ability to negotiate prices directly with drug companies. Ideally, this will lower the cost of brand-name drugs and some generic drugs, though negotiations are still underway and Medicare Part D enrollees have not yet experienced benefits.

The first ten Part D drugs negotiated will have new prices that go into effect in January 2026:

• Eliquis: For preventing strokes and blood clots
• Jardiance: For type 2 diabetes and heart failure
• Xarelto: Prevents blood clots and strokes
• Januvia: Can be prescribed for type 2 diabetes
• Farxiga: For chronic kidney disease
• Entresto: For heart failure
• Enbrel: Used for various autoimmune conditions, including arthritis 
• Imbruvica: For blood cancers
• Stelara: For Crohn’s disease
• Fiasp: Insulin products for diabetes

5: Impacts on Medicare Part B

Medicare Part B covers outpatient health services, like doctor’s appointments, vaccine administration, and preventive care. While most changes relate to Medicare Part D, the act also impacts Part B coverage:

• Insulin pumps, which fall under Part B, have a $35 per month cost-sharing cap.
• CMS implemented a temporary and nominal increase for out-of-pocket Part B costs for biosimilars– a biologic that is extremely similar to an already approved prescription.
• There’s a new Part B cost-sharing cap, including a rebate for those who pay over it. 

6: Inflation Rebates

As of November 2024, the IRA requires drug manufacturers who raise the cost of drugs faster than inflation to pay a rebate to Medicare. This is true for prescriptions or medical supplies covered under Part B and D and for various plan types, including Medicare Advantage and Original Medicare. While this doesn’t directly impact beneficiaries, the aim of these rebates is to stop drug companies from raising costs. 

The Medicare Inflation Reduction Act impacts drug companies, Medicare insurance providers, and Medicare beneficiaries. To qualify for Medicare coverage, you must meet the following:

• Be 65 years of age or older
• Have a disability, End-Stage Renal Disease, or ALS, which qualifies you for Medicare before 65
• Be an American citizen
• Pay Medicare taxes for up to 10 years while working

When you enroll in Medicare, you’re automatically enrolled in Medicare Part A and can enroll in Part B for a monthly premium. Part D is optional, though most benefit from having prescription drug coverage. 

You can also elect to register for Medicare Advantage, which is offered through private health insurance companies and covers Parts A, B, and D, along with additional benefits such as dental, hearing, and more. Other secondary plans include Medigap or Dual Eligbles plans for those who qualify for Medicaid.

While the act was passed in 2022, many of the changes are going into effect in late 2025 or in 2026. 2025 changes include the $35 insulin cap and the introduction of the Medicare Prescription Payment Program. 

While Medicare is negotiating ten drug prices in 2025, the updated prices won’t go into effect until 2026. In 2026, CMS plans to negotiate drug prices for 15 additional medications, with updated costs going into effect in 2027. 

• https://www.cms.gov/inflation-reduction-act-and-medicare 

• https://www.cms.gov/newsroom/fact-sheets/anniversary-inflation-reduction-act-update-cms-implementation 

• https://www.cms.gov/inflation-reduction-act-and-medicare/part-d-improvements 

• https://www.cms.gov/medicare/enrollment-renewal/part-d-plans/low-income-subsidy 

• https://pubmed.ncbi.nlm.nih.gov/39775924/ 

• https://www.cms.gov/files/document/frequently-asked-questions-about-medicare-insulin-cost-sharing-changes-prescription-drug-law-july.pdf 

• https://www.cdc.gov/vaccines/hcp/imz-schedules/adult-age.html#table-age

• https://www.cms.gov/inflation-reduction-act-and-medicare/medicare-drug-price-negotiation 

• https://www.ncoa.org/article/can-medicare-negotiate-the-cost-of-prescription-drugs/ 

• https://www.cms.gov/priorities/medicare-prescription-drug-affordability/overview/medicare-inflation-rebate-program 

• https://www.cms.gov/inflation-reduction-act-and-medicare/inflation-rebates-medicare 

• https://www.ssa.gov/medicare/part-d-extra-help 

• https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-inflation-reduction-act/