What to expect from the Inflation Reduction Act in 2025

Nearly three years ago, Congress passed the Inflation Reduction Act, and it’s taking effect one provision at a time.

One of its biggest pieces: the US government negotiated drug prices directly with manufacturers for the first time ever, announcing discounts on 10 drugs on August 15.

But forget that—the drug discounts don’t take effect until 2026. Before that happens, Medicare Part D is getting a shakeup. Yet researchers tell Healthcare Brew that these provisions and their consequences aren’t as straightforward for patients and providers as they may seem.

“A lot of people have really put their attention on the negotiated drugs. But next year we’re going to have an out-of-pocket cap, the whole benefit [is] changing, the payment plan’s coming,” Amanda Forys, managing partner at Magnolia Market Access, a market research and consulting firm, told Healthcare Brew.

Let’s see what’s set to change in the coming year.

Coverage tier overview

First, a refresher: Medicare Part D has had four phases since it began in 2006: the deductible, initial coverage, the coverage gap, and catastrophic coverage.

Patients first pay off their deductible—a max of $545 in 2024—then reach initial coverage, where they have a copayment or coinsurance.

Then, after they and their plan spend a certain amount on covered drugs—$5,030 in 2024—beneficiaries enter the coverage gap phase, where they pay a higher share of out-of-pocket costs.

Finally, after patients and their plan pay enough money—a cumulative $8,000 in 2024, including manufacturer discounts—they enter the catastrophic coverage phase.

Catastrophic change-up

Prior to the IRA, patients in the catastrophic phase still had to pay 5% of their drug costs.

“The issue was that 5% of a lot of money is still a lot of money, particularly when most Medicare beneficiaries are living on limited incomes and fixed budgets,” Gretchen Jacobson, VP of Medicare for the Commonwealth Fund, told Healthcare Brew.

A 2023 survey by the Commonwealth Fund found that 14% of patients skipped prescription refills due to cost. But starting in January 2024, patients went from paying 5% of out-of-pocket costs in the catastrophic coverage phase to paying none for the rest of the year, thanks to the IRA.

$2,000 cap

Starting in 2025, patients will only need to spend $2,000 out-of-pocket before they reach catastrophic coverage.

“The $2,000 out-of-pocket cap will be really helpful for people with high prescription drug expenses,” Jacobson said.

There also won’t be a coverage gap phase between initial and catastrophic coverage anymore.

Mandated monthly payments

Currently, the ACA requires manufacturers to give a 70% discount on brand-name drugs during the coverage gap. But soon, that phase won’t exist.

Starting January 1, drug manufacturers will now have to give a 10% discount on brand-name drugs in the initial coverage phase instead (compared to a 0% discount before).

And while 10% is obviously smaller than 70%, the Centers for Medicare and Medicaid Services (CMS) notes that most people with Part D don’t spend enough to reach the coverage gap or catastrophic phase, which means more are now getting a discount from manufacturers.

HHS estimated in 2022 that the Medicare Part D redesign could reduce annual out-of-pocket spending from $82 to $15 for low-income beneficiaries and $610 to $541 for others.

Further, monthly payment plans are required to be offered as of 2025.

Overall, patients “really won” with some of these changes, Forys said.

Rx retaliation

Insurers may not feel like they won, however.

In Q3 earnings calls, leaders of insurers like Humana and UnitedHealth Group predicted that their beneficiaries will use more expensive drugs in the coming year now that it’s more affordable to do so.

Payers and pharma companies will fight back in order to recoup expected profit losses, Forys said.

“Even last year and going into this year…some plans consolidated, or some people pulled out of the low income subsidy market,” Forys said.

About 97% of 23 payers and pharmacy benefit managers surveyed by Magnolia Market Access said they would take steps like adding quantity limits or prior authorizations for high-priced drugs in response to Medicare Part D changes. Nearly 83% said they were likely or very likely to exclude more drugs from their formulary, a list of drugs covered by their plan.

“Patients are going to lose on the things that might not be so tangible to them…knowing if their drug is on formulary, or things like that,” Forys said.

CMS says everything’s fine

With all that in mind, CMS is still feeling optimistic.

CMS released an analysis in late September noting there was no uptick in rates of prior authorization or step therapy—requiring patients to try less expensive drugs before more expensive ones—between 2024 and 2025.

Part D premiums are expected to decrease, and benefits will stay about the same, thanks to a July Biden administration Part D premium stabilization demonstration that capped premium increases.

Uncertain future

Though this doesn’t come without a caveat.

With a Republican majority in the House, Senate, and a Republican president-elect, the IRA could be dismantled, Larry Levitt, KFF’s executive VP for health policy, said in a November 8 press conference.

“Any changes to the cap on insulin, the cap on drug costs, the redesign of the Medicare Part D drug benefit, drug price negotiation, all could be altered through reconciliation,” Levitt said.