Medicare beneficiaries are adapting to a significant shift in the healthcare landscape driven by the landmark Inflation Reduction Act (IRA) of 2022, which directly takes aim at high prescription drug costs. While the IRA introduces crucial provisions for more affordable medications—particularly benefiting those with the greatest needs—its real-world impact is multifaceted. Some individuals may, in fact, experience increased out-of-pocket expenses in certain areas. Ultimately, the law is designed to promote better health management and independence, yet understanding its full implications is essential for navigating this new era.
It’s vital for the millions of Americans in Medicare Part D prescription drug plans and Original Medicare Part B to grasp these shifts, which affect everything from annual spending limits to how plan contributions are calculated. As these changes roll out, the financial picture for beneficiaries is transforming, making it more important than ever to pay close attention to how these new rules will influence your personal healthcare budget and access to medications.
Drawing on insights from analyses by the USC Schaeffer Center for Health Policy & Economics and DLA Piper, we’ll explore how the IRA’s provisions, combined with plan designs and other policy adjustments, are significantly altering Medicare costs and coverage. We’ll look at the core goals of the act and some surprising outcomes that are impacting beneficiaries’ wallets and their ability to get the treatments they need, starting with the fundamental aims and then diving into the unexpected results.
The Inflation Reduction Act’s main goal was to make prescription drugs more affordable for Medicare beneficiaries, recognizing that high drug costs are a major hurdle for many seniors. This financial strain can impact their ability to access necessary therapies and manage ongoing health conditions effectively. To address this critical issue, the IRA introduced several key provisions specifically designed to ease this burden for older adults.
The legislation included measures such as capping annual out-of-pocket costs for covered drugs and eliminating the coverage gap for those with moderate drug spending. These changes were specifically designed to provide a crucial layer of financial protection, particularly for the small share of beneficiaries who incur the highest drug expenses over the course of a year. The intent was to ensure that no senior on Medicare Part D would face unlimited costs for their necessary medications.
Despite the IRA’s clear intention to improve affordability, particularly with a new out-of-pocket spending cap, recent research suggests that a notable number of Medicare beneficiaries could actually see their out-of-pocket costs rise. A white paper from the USC Schaeffer Center for Health Policy & Economics highlights this concerning potential trade-off, which might not align with the act’s primary objective.
The analysis reveals that while the annual cap offers significant relief for the small percentage of beneficiaries with the highest drug expenditures, the majority who don’t reach this cap may experience increased costs. This is happening because Part D plans are adjusting their features in response to the new provisions, shifting more costs onto the plans themselves and seemingly reducing the point-of-sale affordability measures that were previously in place.
3. **Capping Costs: The New $2,000 Limit and Coverage Gap Elimination**One of the most significant changes under the Inflation Reduction Act for Medicare Part D beneficiaries, taking full effect in 2025, is the establishment of an annual out-of-pocket cost cap for covered prescription drugs. This cap is set at $2,000 per year, offering substantial financial protection for individuals with high drug expenses.
Moreover, the IRA is set to eliminate the long-standing ‘coverage gap,’ also known as the ‘donut hole,’ for those with moderate drug spending, which is a positive step. Historically, beneficiaries in this phase faced higher costs after their initial coverage ended and before reaching catastrophic coverage, creating a significant cost jump. By removing this gap, the Part D benefit structure becomes simpler and removes a common point of financial distress for many.
4. **Increased Initial Spending: The Trend Towards Higher Annual Deductibles**As Part D plans adapt to the financial incentives and requirements of the IRA, a notable shift identified by researchers is a sharp increase in annual deductibles. The deductible is the amount patients must pay out of pocket before their plan coverage begins to pay for drug costs.
Analysis of Medicare Advantage drug plans shows that average annual deductibles nearly quadrupled between 2024 and 2025, rising from $62 to $224. This striking increase reverses previous trends of decline or modest growth. It is largely driven by a steep decrease in enrollment in more generous, “enhanced” plans that previously offered a zero deductible, with the share falling dramatically from 78% to 41%.
Another significant alteration in Part D plan offerings involves the increasing shift from fixed co-pays for common brand-name drugs to a coinsurance model. Unlike a co-pay, which is a set dollar amount for a prescription, coinsurance means patients pay a percentage of the drug’s actual list price, directly exposing them to price fluctuations and increases.
The shift toward coinsurance has been particularly substantial in the stand-alone drug plan market, where 84.1% of enrollment this year (2025) was in plans requiring coinsurance for these medications, a significant jump from 9.9% in 2020. In Medicare Advantage drug plans, the increase has been sharper more recently, rising from 2.6% in 2024 to 27.5% this year.
This move to coinsurance directly links a beneficiary’s out-of-pocket expenses to the drug’s list price, meaning patients often end up paying considerably more for frequently used brand-name medications, such as the blood thinner Eliquis or the diabetes treatment Ozempic, according to researchers. The financial impact on patients is becoming increasingly apparent with this pricing structure.
The coinsurance that patients pay, typically calculated as a percentage (e.g., 25%) of a drug’s list price, is being pushed upward because these baseline prices are themselves inflated. This inflation is sustained by the complex system of rebates and fees negotiated between drug manufacturers and Pharmacy Benefit Managers (PBMs). While these behind-the-scenes discounts result in significant savings for insurers and PBMs, those savings are often not passed on to the patient at the point of sale. Consequently, the patient’s financial responsibility remains tied to the artificially high list price. This is a systemic issue that the Inflation Reduction Act, despite its substantial progress in other areas like the out-of-pocket cap and insulin cost limits, does not directly address.
