New Medicare Part D Out-Of-Pocket Spending Cap is an Important Improvement for Enrollees Facing High Prescription Drug Costs

Under the Medicare Part D benefit, which provides prescription drug coverage for nearly 56 million Medicare beneficiaries, many enrollees were originally required to pay 5 percent of their prescription drug costs, with no limit, even after their out-of-pocket spending reached a certain threshold and they entered catastrophic coverage. Meanwhile, high and growing drug prices have resulted in high cost-sharing burdens for millions of older adults, sometimes leading them to engage in cost-coping strategies, such as not filling a prescription or skipping doses to save money. 

To help address these challenges, the Inflation Reduction Act of 2022 included a redesign of the Part D benefit that caps annual out-of-pocket spending on prescription drugs. Starting in January 2025, enrollee out-of-pocket costs will be limited to $2,000 per year; this amount will be updated annually with the other parts of the Part D benefit.  This new protection will help everyone enrolled in Medicare Part D by ensuring they no longer face the possibility of unlimited cost-sharing every year.

To better understand the impact of this policy, AARP commissioned research to identify and analyze Part D enrollees who will benefit from the new out-of-pocket limit between 2025 and 2029. (Part D enrollees who receive the low-income subsidy, or Extra Help, typically pay nominal copayments and were excluded from this analysis.)

The analysis finds that the number and share of Part D enrollees who reach the new out-of-pocket cap will increase over time. Across all Part D plan enrollees, 3.2 million (8.4 percent) are estimated to benefit from the out-of-pocket cap in 2025. By 2029, this number will increase to 4.1 million (9.6 percent) enrollees. 

At the state level, the share of Part D enrollees estimated to reach the new out-of-pocket cap ranges from 4.7 percent (Idaho) to 20.2 percent (Alaska) across all years. By 2029, the share of Part D enrollees who benefit from the new out-of-pocket cap is estimated to be 10 percent or higher in 19 states plus the District of Columbia

See the full report for a detailed breakdown of the cap’s impact by state.

The analysis also found that the impact of the new Part D out-of-pocket cap will vary by demographic characteristics. For example, nearly half of the Part D enrollees who will reach the new out-of-pocket limit in 2025, or 1.5 million people, are between the ages of 75 and 84, and slightly more women will benefit than men.

The analysis also finds that enrollees who reach the cap will save an average of $1,500 in 2025, and that an average of 420,000 enrollees (12 percent) will experience savings of $3,000 or more between 2025 and 2029.

Research indicates that the share of Medicare Part D enrollees reaching the catastrophic coverage phase of the benefit has been increasing in recent years, making the new out-of-pocket limit a timely and important improvement. In combination with other provisions in the 2022 drug law that will address high prescription drug prices and related costs, this change will help ensure that more Medicare beneficiaries’ have affordable access to the prescription drugs they need.