Key Takeaways

After a series of negotiations with drugmakers, the Centers for Medicaid and Medicare (CMS) reached agreements that will save the Medicare program an estimated $6 billion.Medicare Part D enrollees, who pay a portion of the drug cost, would save $1.5 billion in out-of-pocket expenses.

The negotiated prices will take effect January 1, 2026.

“For years, millions of Americans were forced to choose between paying for medications or putting food on the table, while Big Pharma blocked Medicare from being able to negotiate prices on behalf of seniors and people with disabilities. But we fought back–and won,” President Joe Biden said in a statement.

Rising drug prices can be especially problematic for older adults. In a 2023 survey, about a fifth of adults ages 65 and older said they skipped their medication due to high costs.

“I can’t tell you how many stories I’ve heard of people not being able to retire because of their own drug costs, or their husband’s costs, or even young people who are worried about their grandmother’s costs. It’s a multi-generational issue to make sure that seniors and people with disabilities can afford their drug coverage in this country,“Chiquita Brooks-LaSure, CMS administrator, told Verywell.

How Much Will People Save?

The negotiated price for each drug is at least 38% lower than that drug’s list price in 2023. The diabetes drug Januvia will see the biggest cut, with a 79% cost reduction.

Importantly, however, it’s not possible to directly compare the two costs. A drug’s list price is often higher than what patients pay at the pharmacy counter because drug makers and insurers may negotiate rebates and discounts.

The price that Medicare plans paid for the drugs in 2023 is confidential, and the actual prices beneficiaries paid were likely lower than the list price.

When someone covered under Medicare Part D picks up a prescription, Medicare pays a portion of the cost of the drug while the patient pays the rest. When the manufacturer reduces the cost of the drug, both the insurance program and the patient save money.

Each Medicare Part D plan has slightly different cost-sharing structures. Next year, when the drug price negotiations take effect, every Medicare beneficiary can expect to pay the same price for the 10 medications.

The First of Several Drug Price Negotiations

The Inflation Reduction Act, signed into law in 2022, gave Medicare the power to directly negotiate with manufacturers to reduce the cost of certain drugs for which there are no available generic alternatives.

The 10 drugs were selected from a list of the 50 medications that Medicare Part D spends the most money on.

More drug prices are set to be negotiated in the coming years. The CMS will negotiate prices for 15 more drugs for 2027, another 15 for 2028, and 20 for every year after that. The next slate of drugs up for negotiation will be announced in February 2025.

The Congressional Budget Office (CBO) estimated that the negotiations would result in Medicare saving nearly $100 billion over the next decade. In 2022, the CBO also projected that Medicare would save $3.7 billion during the first year of negotiations.The final prices will nearly double those savings.

“Empowering Medicare to negotiate prices not only strengthens the program for generations to come, but also puts a check on skyrocketing drug prices,” HHS Secretary Xavier Becerra said in a statement.

“With 11,000 Americans turning 65 every day, we look forward to more drug price negotiations in the coming years that will make medicines even more affordable for our rapidly growing older adult population,” the National Council on Aging said in a statement.

Other Health Care Cost Reforms for Medicare Enrollees

The move comes alongsideother drug pricing reformsoutlined in the Inflation Reduction Act. Last year, the administration announced a $35-a-monthprice cap for insulin. People on Medicare can also get certain preventive vaccines for free, including for shingles, flu, and RSV.

When people with Medicare Part D coverage have especially high drug costs, they may enter the “coverage gap phase.” In past years, they were expected to pay 100% of their drug costs in this phase. Now, they pay 25% of their drug costs out of pocket. In 2025, CMS will eliminate the coverage gap phase, so enrollees won’t see a change in the cost-sharing expectations for each of their drugs.

Part D enrollees who were in the “catastrophic coverage phase”—those who had even higher healthcare costs—were expected to pay 5% of the drug costs out of pocket. In 2024, those out-of-pocket costsare cappedat about $3,500. Next year, that cap will drop to $2,000.

When people have even higher healthcare costs, they move from the coverage gap to the catastrophic coverage phase. In past years, Part D enrollees were expected to keep paying 5% of their drug costs out of pocket when they reached that phase. In 2024, those out-of-pocket costsare cappedat about $3,500 for people with catastrophic coverage. Next year, that cap will drop to $2,000.

“For Americans who have conditions like cancer, who oftentimes hit a $2,000 amount within the first couple of months, that will be a big saving,” Becerra said in a press call.

CMS is also consideringnew rulesthat would limit the growth of Medicare Part D premiums andprovide rebatesfor enrollees if drug prices outpace inflation.

“That has been a challenge to the Medicare system,” she said. “The changes in drug negotiations and the cap on out-of-pocket costs on prescription drugs are changes that I would say were overdue to the Medicare program. Many of these reforms are already in place for the commercial market.”

The Congressional Budget Officeestimatedthat over the next 30 years, 13 of the estimated 1,300 new drugs will not make it to market because of the price negotiations.

“I believe that our drug industry is thriving and innovative. I hope that knowing that more Medicare beneficiaries are going to get the drugs that they are making will encourage them to continue to be innovative” Brooks-LaSure said.

Prescription Drug Insurance: What You Need to Know

What This Means For You

2 SourcesVerywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Dusetzina SB, Besaw RJ, Whitmore CC, et al.Cost-Related Medication Nonadherence and Desire for Medication Cost Information Among Adults Aged 65 Years and Older in the US in 2022.JAMA Netw Open.2023;6(5):e2314211. doi:10.1001/jamanetworkopen.2023.14211Congressional Budget Office.Estimated Budgetary Effects of Public Law 117-169, to Provide for Reconciliation Pursuant to Title II of S. Con. Res. 14. 2022.

2 Sources

Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Dusetzina SB, Besaw RJ, Whitmore CC, et al.Cost-Related Medication Nonadherence and Desire for Medication Cost Information Among Adults Aged 65 Years and Older in the US in 2022.JAMA Netw Open.2023;6(5):e2314211. doi:10.1001/jamanetworkopen.2023.14211Congressional Budget Office.Estimated Budgetary Effects of Public Law 117-169, to Provide for Reconciliation Pursuant to Title II of S. Con. Res. 14. 2022.

Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Dusetzina SB, Besaw RJ, Whitmore CC, et al.Cost-Related Medication Nonadherence and Desire for Medication Cost Information Among Adults Aged 65 Years and Older in the US in 2022.JAMA Netw Open.2023;6(5):e2314211. doi:10.1001/jamanetworkopen.2023.14211Congressional Budget Office.Estimated Budgetary Effects of Public Law 117-169, to Provide for Reconciliation Pursuant to Title II of S. Con. Res. 14. 2022.

Dusetzina SB, Besaw RJ, Whitmore CC, et al.Cost-Related Medication Nonadherence and Desire for Medication Cost Information Among Adults Aged 65 Years and Older in the US in 2022.JAMA Netw Open.2023;6(5):e2314211. doi:10.1001/jamanetworkopen.2023.14211

Congressional Budget Office.Estimated Budgetary Effects of Public Law 117-169, to Provide for Reconciliation Pursuant to Title II of S. Con. Res. 14. 2022.

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