Congress could give seniors a break on prescription drug costs. Here's how the plan works

Hundreds of thousands of Medicare beneficiaries in California could see their prescription drug costs plunge under a big spending bill Congress is about to consider.

The legislation would cap out-of-pocket costs for medications at $2,000 a year, a provision that the nonpartisan Kaiser Family Foundation estimates would benefit 114,775 Californians.

Almost half a million Medicare beneficiaries in the state who also pay a portion of the cost of vaccines for shingles, pneumonia and other diseases that commonly afflict the elderly would end that cost sharing and provide the vaccines for free.

"People with high out of pocket costs will see real savings," said Juliette Cubanski, the foundation's deputy director of the program on Medicare policy.

"So many people, especially seniors, ... have multiple medications they need filled," said Sacramento-based consumer advocate Anthony Wright. "There are some patients who have extreme costs: the diabetic who needs insulin on a regular basis; the multiple sclerosis patients, some of their drugs are literally thousands of dollars."

He added: "Inflated prescription drugs prices are broadly felt by all of us, and they're also acutely felt by those who have big, big bills because of either the types of drugs they have to buy or because they just have a lot of them to buy."

Perhaps the most far-reaching aspect of this legislation, known as the Inflation Relief Act, is a provision that would allow U.S. Centers for Medicare & Medicaid Services to negotiate drug prices for beneficiaries who have signed up for the Medicare prescription drug benefit, known as Medicare Part D.

The health agency has been barred from negotiating with drugmakers on pricing since 2003 when Medicare Part D was approved with bipartisan support and signed into law by President George W. Bush, a Republican.

Think tanks and academic researchers have long pointed out that Americans pay significantly more for prescription drugs than residents of other industrialized nations, and consumer advocates and Democrats have said that giving Medicare negotiating power would help to curb price increases often imposed by pharmaceutical companies.

"I think people ... recognize that the prescription drug pricing is often out of whack, that there doesn't seem to be a lot of rationale for why a drug is costing hundreds or even thousands of dollars, said Wright, the executive director of Health Access.

The bill needs approval by the Senate and the House, which are expected to debate and vote on the measure this month.

How seniors save

The key provisions at the moment:

Price negotiations. This bill will allow prescription drug price negotiations on high-cost medication beginning in 2026. The process opens with 10 prescriptions, rising 15 in 2027 and 20 medications in 2029 and beyond.

The state of California has been collecting information on drug pricing and has been moving toward bargaining on drug pricing with manufacturers. If Medicare already has negotiated pricing for the 10-20 most common prescription drugs, Wright said, then that could remove some work for California negotiators and allows them to move on to the drug at No. 21 and others down the list.

More people eligible for extra help.Tens of thousands of Medicare Part D beneficiaries in California now receive subsidies to help defray the costs of their prescription medications. This bill would expand eligibility to slightly more than 24,000 people.

Currently, to receive full subsidies, beneficiaries must have income at 135% of the federal poverty level. The Inflation Relief Act would increase the level to 150%, likely starting in 2024.

For an individual, that would raise the income levels from the $18,346 to $20,385 under current poverty levels. For a family of four, the income level would rise from $37,462 to $41,625.

Vaccines.Eliminates cost-sharing, meaning beneficiaries can receive vaccines covered under Part D for free.

Catastrophic drug coverage. If Part D beneficiaries used only brand-name drugs, their out-of-pocket spending on medicine had to exceed $10,000 for the year before Medicare would start picking up 95% of the cost. A provision in the new law, effective in 2024, would require Medicare to pick up the entire cost. More than 110,000 Californians could benefit.

Premium cost increases. No more than 6% a year between 2024 and 2029.

Curbs on excessive price increases.Drug companies would be barred from increasing prices beyond the rate of inflation. They would have to pay rebates to the government and those rebates would go to help Medicare if prices exceeded the cost of living.

Wright said he believes this would effectively end wild upswings in the costs of some drugs since drugmakers won't want to make those payments.

The government's savings from these provisions is designed to help pay for the extension of Obamacare subsidies to lower and middle-income people over the next three years as well as deficit reduction. This financial assistance, part of the coronavirus relief law known as the American Rescue Plan, allowed many Golden State residents to pay as little as $10 a month for 2022 insurance policies from Covered California.

Roughly 59,000 Sacramento County residents took advantage of the subsidies for coverage this year, and if they expire, their average monthly premiums would skyrocket to $179 from $85. Indeed, prices would soar around the state: to $160 from $76 in Fresno County, to $183 from $89 in Stanislaus County and from $28 to $100 in Merced County.

The politics of Medicare

Democrats are calling the bill a historic measure.

"We are now on the cusp of a once in a generational opportunity," said Senate Finance Committee Chairman Ron Wyden, D-Oregon. The bill, he said, will stop consumers from "getting mugged at the pharmacy counter."

Many Republicans don't see the changes as beneficial.

"It's no real reform," said Sen. Roy Blunt, R-Mo. "If you wanted to really do something about drug prices, you'd take advantage of what we did with Medicare Part D, which was to create a marketplace.

"Every time they touch it they try to reform the competitive nature out of it," said Blunt, the top Republican on the Senate's labor/health and human services appropriations subcommittee. "It was incredibly successful when it was put in place and will continue to be if you'll continue to make it a marketplace rather than a regulated government-run health care system."

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