The Inflation Reduction Act of 2022 (IRA) was well intended, but as many things in Washington DC, many believe intentions are more important than results. It was meant to save Americans money. It did the absolute opposite. It cost Americans money in taxes for pet projects, and in loss of benefits and higher copays and deductibles on their Medicare Advantage health plans and stand-alone prescription plans. But just as quickly as the damage was done, it is being undone in 2025.
The new administration is more than doubling reimbursement rates by giving Medicare over $26 BILLION, with a mandate that the bulk must be used in Medicare Advantage plans. And just today (as of this writing on May 13, 2025) it signed an executive l=order to help lower the cost of prescription drugs. Read how below.
The IRA forced insurance companies to have to find 1,200% more money for prescription drugs in the catastrophic coverage phase of Part-D (prescription plans). While it sounds great on paper, no business can be told with a one-year notice that they must find money they don’t have to provide something mandated by the government and survive easily. The only option they had were to make the customer pay.
How does the customer pay?
The customer pays in one of two ways: reduced benefits (which means more expenses for the missing benefits, out of pocket) and higher cost on what they do get. While it sounds fabulous to only have to spend $2,000 on medications (which the majority of the people never do), to only have to pay the supposedly saved money somewhere else, when you do the math – the math never lies.
- Dental and vision benefits have shrunk
- Over-the-counter (OTC) allowances have shrunk or disappeared
- Copays have gone up
- Maximum-out-of-pocket limits have gone through the roof on many plans (even HMOs)
- Deductibles on medications that did not exist were now being charged
- Drug costs went from a flat copay to a 33% co-insurance on average, for the most expensive tier
- Medical and hospital co-insurances were added to many plans
For the small percentage of people who do use more than $2,000 in medications a year, one could argue they at least gained that. However, for those who do not, they are bearing the cost for the select few.
Adding insult to injury
On top of all that, the previous administration was slashing reimbursement rates for Medicare to hospitals and medical providers. Well, if they must find 1,200% more money, AND you are slowing down the spigot, how do you intend they do so?
Before the new administration changed things, it was projected that Medicare would only pay reimbursements with a measly increase of 2.3% increase. The new administration increased reimbursements to 5.09%, providing much-needed funding to ensure patients get quality care. That is an injection of over $26 BILLION, with the bulk having to be used on Medicare Advantage.
So, while 2025 saw shocking changes to plans, 2026 looks to be a more generous year. This Annual Enrollment Period (AEP, October 15th through December 7th) looks to be an exciting year.
Good News on the medication front
For decades, pharmaceutical companies argued that it costs billions of dollars in research and development to create these wonder drugs. Which is why they are SO EXPENSIVE! But they don’t charge other countries what they charge Americans. Why? Because they know the government has often jumped to the rescue by instituting programs like Extra Help, to pay those exorbitant prices. What the government would not cover, insurance companies would. And anyone who fell through cracks, well a manufacturer program made it that they lost very little money for the few who would meet their criteria. A small price to pay for the billions everyone else was paying. America was funding the world!
Well, this new executive order has changed all that. Pharmaceutical companies have been put on notice that they have 30 days to lower prices to a reasonable standard, based on what other countries pay, and if they do not, then the department of Health and Human Services will enforce favored-nation-status drug pricing. In other words, whatever the least paying country is charged will be the price America will pay.
They have the opportunity to control how much less they will charge, or they will lose all control and be forced to pay the least amount possible. Now that is how you negotiate.
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