More Than 3 Million Older Americans Will See Rx Savings With Out-of-Pocket Cap

For the first time ever, Medicare drug plans will limit out-of-pocket spending. The historic change takes effect Jan. 1

Rachel Nania,

AARP

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Published August 28, 2024

Sandy Hankin sits at a table in her home

Sandy Hankin, 73, takes a pricey prescription drug to help manage her diabetes. She expects to save money when the out-of-pocket cap goes into effect.

Mary Beth Koeth

It’s not unusual for Gordon Irwin to shell out $500 or more at the pharmacy counter when picking up his medications, which include prescriptions that help regulate his blood sugar and reduce complications from atrial fibrillation, or A-fib. He’s also no stranger to paying nearly $1,000 a month, though that tally can vary, for outpatient medications to help manage his wife’s multiple myeloma and other health conditions.

In 2023 alone, the Knoxville, Tennessee, couple spent more than $17,000 out of pocket on their prescription medications. The year before that, the figure was even higher, “because my wife’s cancer medicine cost about $400 a month less last year” than in 2022, says Irwin, 80, a retired educator.

Irwin is one of nearly 3.2 million Americans who is expected to save money on prescription medications next year under a new law that caps out-of-pocket expenses for people with a Medicare prescription drug plan at $2,000.

By 2029, more than 4 million people with a Medicare drug plan who do not receive the program’s low-income subsidy will hit the annual ceiling and see savings when they go to fill their prescriptions, according to a new report published by AARP.

A High Cost to Bear

An estimated 82 percent of Americans age 50 and older believe that prescription drugs are too expensive, research from AARP shows.
Nearly half of people polled by AARP report not filling a prescription due to its cost, or knowing someone who has done so.
Twenty-one percent of older adults surveyed by AARP report spending more than $1,000 out of pocket in the past year on prescriptions.
Nearly three-quarters of surveyed adults (71 percent) say that they or someone they know will benefit from the new out-of-pocket cap.

Source: AARP, 2024

“It’s huge,” Irwin says, noting that he will be saving thousands. “My wife and I have always lived a reasonably frugal life, but obviously these costs have had an effect.”

Nearly 56 million adults in the U.S. have a plan under Medicare that helps cover the cost of outpatient prescription medications — the kind you get from a pharmacy and take at home. And for the most part, satisfaction with this program, known as Part D, remains high, a 2024 report to Congress shows.

But Part D plans have historically not had a limit on out-of-pocket spending. This, coupled with rising drug prices, has resulted in a financial nightmare for many people, especially those on pricey medications. A 2023 study published in JAMA Network Open found that a significant share of older adults have coped with increasing out-of-pocket drug expenses by skipping doses of their medicine or by not filling their prescriptions.

An AARP-backed law passed in 2022 aims to address this growing burden by placing an annual limit on the amount of money people with Medicare drug plans pay out of pocket for their prescription drugs. The new $2,000 cap takes effect Jan. 1 and will be adjusted for inflation every year, along with the other parts of the Part D benefit.

“No person should have to face unaffordable prescription drug costs year after year,” says Leigh Purvis, AARP’s prescription drug policy principal. “This new law will bring relief to so many people who have been struggling with the effects of skyrocketing drug prices.”

Gordon Irwin leans against a brick wall outside his home

Gordon Irwin, 80, of Knoxville, poses for a portrait outside his home.

William DeShazer

More than 1 million will save $1,000-plus from new cap

The amount of money each person will save under the new law will vary depending on the medications a person takes and how much they have to pay for them. An estimated 1.4 million adults with a Medicare prescription drug plan who reach the new out-of-pocket cap between 2025 and 2029 are expected to see an average annual savings of $1,000 or more, the AARP report shows. More than 420,000 Medicare Part D enrollees will save $3,000-plus.

Sandy Hankin, of Sunrise, Florida, has tried a few different medications to help manage her diabetes and recently started taking a drug that she says has done wonders for her condition. But the new medication and others she was taking before it — all with a list price of around $1,000 a month — put her in Medicare’s coverage gap, sometimes still referred to as the “donut hole,” that was part of the original Part D benefit. Through the end of this year, the 73-year-old retired attorney expects to pay a lot more in out-of-pocket expenses to fill her medication.

Hankin says knowing that the $2,000 cap goes into effect in 2025 was part of her “thought process” when discussing with her doctor whether she should start taking the drug to help her worsening diabetes. “Knowing that next year it will be so much less out of pocket, it’ll be less of an issue,” she says.

A closer look at who will save

Most Medicare enrollees expected to benefit from the spending limit are between 75 and 84 (45.6 percent) or between 65 and 74 (29.8 percent).

Savings from the new cap vary across states. In Irwin’s home state of Tennessee, 53,942 people with Medicare Part D plans who do not receive the program’s low-income subsidy are expected to hit the $2,000 out-of-pocket cap in 2025 — that’s 6.4 percent of beneficiaries with a prescription drug plan, according to the new AARP report. In Hankin’s Florida, 203,518 Medicare enrollees will benefit from the new rule — roughly 7 percent of the population with a Part D plan.

Meanwhile, more than 18 percent of Alaska’s Medicare population is expected to reach the prescription drug cap in 2025 — a share that grows to 20.2 percent in the next four years. By 2029, the share of people with Medicare drug plans, not including those with a low-income subsidy, who benefit from the new out-of-pocket cap will be at least 10 percent in 19 states plus the District of Columbia.

“AARP was instrumental in Congress passing the prescription drug law of 2022 to lower prices and out-of-pocket costs for Medicare enrollees,” AARP CEO Jo Ann Jenkins said in a statement. “As we approach January 2025, we want every senior in America to know that, thanks to the new annual cap which limits their out-of-pocket costs, they will have more money to invest in their families, spend on their broader health needs or simply save to achieve greater financial stability.”

More ways to save

The annual out-of-pocket cap is just one part of the 2022 law that helps to make prescription medications more affordable for older adults. The law also limits insulin costs for Medicare beneficiaries to $35 a month and, for the first time ever, gives Medicare the power to negotiate with manufacturers for lower prices for certain high-cost prescription drugs.

The negotiated prices for the first 10 drugs selected by Medicare take effect in 2026, and they are expected to save Medicare Part D enrollees a collective $1.5 billion in out-of-pocket expenses in that first year.

pill bottles and a handwritten list of numbers

Mary Beth Koeth

What’s more, the law has expanded eligibility for Medicare Part D’s low-income subsidy, or Extra Help program, and it has required drug companies to pay a rebate to Medicare whenever their prices rise faster than the rate of inflation.

“By addressing prescription drug costs and the high prices that are driving them, this law will result in substantial savings for older Americans and taxpayers who help fund the Medicare program,” Purvis says.

With the extra money he’s set to save in 2025, Irwin says he might go out to eat with his wife more than he does now — “and probably eat better things when I do eat out,” he adds. “Medical costs have reduced our lifestyle,” says Irwin, who explains that he and his wife don’t spend on niceties like golfing or going to the movies, and they downsized to a two-bedroom apartment in a 60-plus-year-old building to save money.

Despite these sacrifices, Irwin considers himself fortunate that he’s been able to pay for his medications. “I'm probably more concerned about others than I am me,” he says.