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Everything you need to know about Medicare reforms

Your guide to the upcoming changes

There are six key Medicare reforms that were passed in 2022 as part of the Inflation Reduction Act. They will take effect in the coming months and years, beginning in 2023. This article was last updated in November 2022.

Below, we outline the reforms, when they will take effect, and what people with Medicare insurance will need to know. We’ve also addressed many of the questions we received from grant recipients and healthcare providers and will update this content as new information becomes available.

If you or a loved one has Medicare insurance, bookmark this explainer about these Medicare reforms and mark your calendar for the long-awaited financial relief. Keep reading to learn more. You can also watch our one-hour educational webinar, which explains the changes.

Overview of new Medicare reforms

Understanding Medicare coverage

These reforms will reference different types of Medicare coverage. You may want to review what is covered by each plan before you read on:

Part A Hospital insurance covers: Inpatient hospital stays; car in a skilled nursing facility; hospice care; some health care. It does not cover regular doctor visits or prescription drugs.
Part B: Medical insurance covers: Certain doctor's services; outpatient care; lab tests; medical equipment; preventative services; ambulances.
Part C: Medicare Advantage is an alternative to original Medicare. Covers benefits included with original Medicare. Sometimes covers dental care, vision benefits, over-the-counter items, etc. May include prescription drugs.
Part D: Prescription coverage plan covers Prescription drugs. Part D plans are offered by private companies approved by Medicare.

Vaccines

Beginning on January 1, 2023, Medicare Part D plans and Medicare Advantage plans will not require a deductible, coinsurance, or other cost-sharing requirements for adult vaccines that are recommended by the Centers for Disease Control and Prevention (CDC)’s Advisory Committee on Immunization Practices. This will include the shingles vaccine.

Vaccines currently administered in doctors’ offices and paid for by Part B do not have cost-sharing obligations. For more information, see page 50 of Medicare and You 2023 to learn which vaccines are covered under Part B and Part D.

Insulin co-pay monthly cap of $35

Beginning on January 1, 2023, cost-sharing for insulin products will be limited to no more than $35 per month for people with Medicare insurance, including insulin covered under both Part D and Part B. No deductibles will apply. All Medicare Part D plans, both stand-alone plans and Medicare Advantage drug plans, cannot charge more than $35 per month for whichever insulin products they cover.

It is important to note that plans will not be required to cover all insulin products. Beginning in July 2023, similar caps on costs will apply for insulin used in traditional insulin pumps, which is covered by the Part B program. This insulin provision also applies to people enrolled in the federal Extra Help program.

Learn more about Medicare insulin coverage.

Expansion of the federal Low-Income Subsidy (LIS) or Extra Help program

Beginning in 2024, there will no longer be a partial program in the Low-Income Subsidy program. Full benefits will be offered to people with Medicare with limited resources and incomes up to 150 percent of the federal poverty level. With full benefits, the majority, if not all out-of-pocket costs for prescription medications will be covered.

Visit our Extra Help education hub to learn more about this program and see if you qualify.

Elimination of the five percent coinsurance for Part D catastrophic coverage

Beginning in 2024, the five percent prescription cost-sharing obligation for Part D will be removed. Currently, when someone on Medicare has spent around $3,100, they will enter what’s called the catastrophic phase of their benefit. In this phase, they will have to pay five percent of prescription costs for the rest of the year, without a maximum limit. According to a 2022 Kaiser Family Foundation brief, the changes will be like having a cap of about $3,250 for the calendar year.

Annual limit of $2,000 for prescription drug costs in Part D

Beginning in 2025, there will be a hard cap or annual limit of $2,000 for prescription medications. No one with Medicare insurance will spend more than $2000 a year for their prescription medications that are covered under Part D.

This provision does not relate to drugs covered under the Medicare Part B program. Medicare Part B covers drugs that are administered by a doctor, nurse, or other healthcare provider in an outpatient setting such as a doctor’s office. For example, some cancer drugs and injectable drugs are covered under Part B. Read more about the Part D cap below.

Option to smooth out-of-pocket prescription drug costs in monthly installments

Beginning in 2025, each Medicare prescription drug plan, including Medicare Advantage plans with drug prescription programs, must give patients the option to pay for their out-of-pocket prescription costs in monthly installments, with a monthly limit on spending. At PAN, we have called this provision smoothing, as it more evenly distributes costs throughout the year.

Please note that patients will need to enroll in smoothing. Monthly payment plans will not be automatic. Read more about part D smoothing below.

Cost and coverage impacts

Changes to insurance coverage

These changes will not affect an individual’s current Medicare enrollment and should not impact decisions during open enrollment. During open enrollment, we encourage people to select plans that best match their current prescription and medical needs.

The Medicare reforms apply to all Part D plans and Medicare Part C or Medicare Advantage plans that have prescription drug coverage. Medicare HMO plans are included if they offer drug coverage. The reforms do not apply to supplemental insurance or Medigap plans, or Red, White & Blue insurance, which covers Parts A and B of the Medicare program.

Medicare reforms apply toMedicare reforms DO NOT apply to
All Part D plansSupplemental insurance
Medicare Part C—or Medicare Advantage—plans with prescription coverageMedigap plans
Medicare HMO plans, if they offer prescription coverageRed, White, and Blue insurance

These reforms should not impact your medication choices

Medicare reforms, such as the Part D cap and smoothing, apply to all medications covered by the Medicare program, including those on specialty tiers. No drugs are excluded. You will not have to change medications in order to benefit from the Part D cap and smoothing. The Medicare reforms will apply if you are taking a brand or generic medication.

What medication is best for you is a decision between you and your healthcare provider. During the open enrollment period, we recommend that you pay close attention to any changes in your current plan related to medications you may need, and carefully review a potential new plan’s drug coverage and related co-pays and coinsurance.

Out-of-pocket prescription drug costs after the new reforms

In 2024, after paying the initial deductible, a person on Medicare will pay 25 percent of drug costs. They will have a cap of about $3,250 and will no longer pay five percent of drug costs in the catastrophic phase.

In 2025, after paying the initial deductible, a person on Medicare will pay 25 percent of drug costs. They will not spend more than $2,000 a year in out-of-pocket costs for their prescription medications.

Three charts comparing out-of-pocket spending per the current law in 2023 to the Medicare reforms implemented in 2024 and 2025

Cost-sharing in the catastrophic phase has been decreased for 2024 and will be eliminated in 2025. Patients will continue to pay co-pays at the pharmacy counter until they reach the Part D cap of $2,000 in 2025.

Changes to coverage and premiums

The Medicare Part D cap will apply, regardless of what tier the medication is placed on. For the period of 2024 to 2030, increases in Medicare Part D premiums will not exceed six percent each year.

Using discount cards and drug manufacturers’ assistance

By law, drug manufacturer patient assistance programs cannot assist people with federal insurance, including Medicare. Drug manufacturer assistance programs support people who are uninsured and people with commercial insurance. For example, manufacturer coupon cards may be available for those with commercial insurance seeking access to particular branded medications.

About the Part D cap

The $2,000 cap does not apply to prescriptions under Part B

The $2,000 cap only applies to Medicare Part D plans and Medicare Advantage programs with prescription drug plans and does not apply to drugs covered under Medicare Part B.

The cap only applies to covered medications

The Part D cap only applies to medications that are covered by a patient’s Medicare prescription drug plan. Part D plans may choose to not cover certain drugs. However, they are required to cover medications that fall into one of the six protected classes: immunosuppressant (organ transplant), antiretroviral (HIV/AIDS), antidepressant, antipsychotic, anticonvulsant (seizures), and antineoplastic (cancer). Drug plans must cover at least two drugs in other categories.

If you are prescribed a drug that is not covered by your prescription drug plan, here are some options:

  • If the non-covered prescription drug is a brand-name medication, ask your doctor whether a generic equivalent might work (if there is one).
  • Find out whether there are any other prescription drugs in your plan’s formulary that would be effective.
  • Your physician can try a formulary exception, a request to obtain a Part D drug that is not included on a plan’s formulary. If the plan denies the request, there is an appeals process.
  • During the Open Enrollment Period, October 15-December 7, evaluate the plans available to you. You might find one that covers your needed medication.

Please note, if you choose to pay for a medication that is not covered by your prescription drug plan, your payment will not apply toward the Part D cap of $2,000.

Tracking payments toward the cap

The patient’s Part D plan or Medicare Advantage drug plan will be tracking costs and will determine when the cap has been met.

Income requirements for the Part D cap

Anyone with a Medicare Part D plan or who is enrolled in a Medicare Advantage program with a prescription drug plan will automatically have a Medicare Part D cap in 2025. There are no eligibility requirements, including income.

About Part D smoothing

When smoothing will begin

In 2025, someone on Medicare with a prescription drug plan will have the option to enroll in the monthly payment plan, either before the beginning of the plan year or in any month during the plan year. Information about how to opt into this program will be provided by the drug plans in educational materials.

Enrolling in smoothing

Smoothing only applies to out-of-pocket costs for prescription medications. Smoothing payments do not include premiums. The opportunity to enroll in smoothing is not income-based. All Medicare prescription drug plans must offer enrollees the option to pay out-of-pocket costs in monthly installments.

Once a patient is enrolled, their monthly payment will be determined based on their out-of-pocket costs and the remaining months in the year. Remember, the annual cap will begin at the same time as smoothing, so the maximum amount a person with Medicare will pay is $2,000 per year.

Here is an example of what smoothing will look like in 2025 when the $2,000 annual cap is in place. In this example, the patient had $12,000 of out-of-pocket costs, but they are only responsible for $2,000 because of the annual cap. The chart below shows that if the patient enrolled in smoothing in January, they would be responsible for monthly payments of $166.

A graph explaining how smoothing distributes $2,000 in annual out-of-pocket costs into twelve equal payments

Patients with multiple medications

Smoothing can be applied to several medications. Effective in 2025, no one will pay more than $2,000 per year for out-of-pocket costs related to covered medications in Part D and Medicare Advantage prescription drug plans. Monthly payments begin only after a patient successfully enrolls in smoothing, and the patient will need to make monthly payments for the remainder of the plan year.

Patients who opt in will be able to make monthly payments toward their total out-of-pocket costs, for all their covered prescriptions.

Impacts on PAN grants

No impact to current PAN Foundation grants

The Medicare reforms will not affect grants for those who are currently receiving financial assistance from the PAN Foundation. For providers, the process of enrolling patients in grants will not change.

We know that many patients, especially people living with serious illnesses who need specialty medications, will continue to face high out-of-pocket costs. While out-of-pocket costs may come down for some patients in 2024 and 2025, we know there will still be financial challenges for many.

The PAN Foundation will be here to help the thousands of patients who may not be able to afford treatment for years to come. ​We will continue to evaluate our programs and assistance amounts each year. Any future changes will be included on our website.

Availability of PAN grants in the future

PAN will continue to provide financial assistance, even after the Part D cap is implemented in 2025. We know that affording $2,000 in out-of-pocket costs for prescription drugs each year will still present financial obstacles for many people. We hope to expand our assistance in new disease areas in the future and, with continued support from donors, our goal is to help even more people living with life-threatening, chronic, and rare diseases.

More reforms are needed

Dental, vision, and hearing benefits for people on Medicare

At PAN, we have long advocated for the expansion of dental, hearing, and vision benefits in the Medicare program. Unfortunately, the Inflation Reduction Act did not expand these benefits.

However, there was good news recently related to hearing aids: more affordable hearing aid options are now available, thanks to a new category of over-the-counter hearing aids established by the U.S. Food and Drug Administration (FDA). Over-the-counter hearing aids are now being sold in stores and online, without needing a hearing exam, prescription, or fitting appointment.

Prior authorization rules have not changed

The Inflation Reduction Act did not include provisions relating to restrictive utilization management practices, such as prior authorizations. However, the House of Representatives recently passed H.R. 3173, the “Improving Seniors’ Timely Access to Care Act.” This act would create requirements and standards relating to prior authorization for Medicare Advantage plans. The bill has not yet been considered in the Senate. 

Impacts on people without Medicare

In 2021, the American Rescue Plan Act temporarily lowered healthcare costs for most Marketplace consumers by increasing financial assistance based on income level. These short-term subsidies were set to expire at the end of 2022, but the Inflation Reduction Act included a provision that extends these enhanced premium subsidies through the end of 2025.

Additional resources

Stay updated about Medicare reforms

Medicare and your Part D plans should share information about the Medicare reforms before they go into effect. For example, Medicare and some plans have already published information about the vaccine and insulin cap provisions, going into effect on January 1, 2023.

PAN will continue to educate patients and providers about important timelines and next steps. The latest information will be included here on our Medicare reforms webpage.

Learn more with these key resources

Learn about the Extra Help program

People with Medicare insurance may qualify for the Extra Help program, which helps pay for monthly premiums, annual deductibles, and co-payments related to Medicare prescription drug coverage. It is estimated that the Extra Help program is worth about $5,100 per year. To qualify for Extra Help, you must be receiving Medicare and have limited resources and income. You must also reside in one of the 50 states or the District of Columbia. To learn more, visit Extra Help with Medicare Prescription Drug Plan Costs.