Here is a breakdown of how the Inflation Reduction Act of 2022 will impact how Medicare Beneficiaries pay for their prescription drugs:

1. Current vs. Future Costs: Right now, even if you hit your “out-of-pocket limit” for Medicare Part D, you might still have to pay 5% of your drug costs, which could add up to a lot. But with the new rule starting in 2025, once you spend $2,000 on medications, you won’t have to pay any more for the rest of the year.

2. How the Costs Add Up: Normally if you spend money on a doctor or medications, it counts directly toward your out-of-pocket maximum (the most you have to pay). However, with Medicare Part D, it’s more complicated. Sometimes drug manufacturers or the government help pay, and those contributions also count toward reaching that $2,000 limit.

3. Who Pays What: Under the new law, most people will actually spend less than $2,000 to hit their out-of-pocket limit. This is because Medicare calculates based on something called “the greater of” rule. So, if a drug costs $100, but your plan only makes you pay $10, Medicare might count the $100 toward your limit, meaning you’ll hit the cap faster without paying that full amount.

4. Exceptions: Some people, like those on very basic Medicare plans or those taking expensive drugs, might still end up paying closer to the $2,000 limit. But many, especially those with better plans, will pay much less.

5. Impact on the System: Since more people will hit their out-of-pocket limit faster, other payers, like insurance companies or the government, will have to cover the remaining costs for the rest of the year. This could make drugs more affordable for patients and may even encourage people to use more of their prescribed medications.

In short, starting in 2025, many people with Medicare Part D will spend less out-of-pocket on prescription drugs, thanks to the changes in the IRA, which caps their total spending at $2,000.