October 13, 2025
Back in 2022, though, the introduction of the Inflation Reduction Act offered a partial remedy that began at the start of 2025: Medicare Part D. This limited out-of-pocket spending to $2,000 for covered prescription drug use that fell under Part D.
The law of supply and demand dictates that when competition is scarce, prices will inevitably skyrocket. In the healthcare realm, this often means that patients facing high drug costs are often forced to forgo care, a decision that can lead to health complications. For Medicare beneficiaries, in particular, soaring specialty prescription drug prices and seemingly outrageous out-of-pocket expenses have created a tension point in U.S. health policy.
Back in 2022, however, the introduction of the Inflation Reduction Act offered a partial remedy that began at the start of 2025, specifically with the implementation of Medicare Part D. This limited out-of-pocket spending to $2,000 for covered prescription drug use under Part D.
However, patients remain vulnerable amid rising alternative costs for drugs not under Part D and a host of other factors. CheapInsurance.com compiled data from accredited sources, including the National Library of Medicine, CMS Newsroom, the Pan Foundation, and others, to conduct a comprehensive analysis of Medicare Part D.
The $2,000 out-of-pocket cap: Immediate relief for millions
As outlined by the U.S. Department of Health and Human Services, an estimated 11 million individuals enrolled in Part D were impacted by the spending cap at the start of the year. These enrollees are currently estimated to experience an average out-of-pocket savings of $600 per person, with this value being even higher (approximately $1,100) for those who don’t receive financial assistance. The impact of this cap covers three primary areas.
Implementation and impact
One of the centerpieces of the Inflation Reduction Act’s reforms is to place an annual cap on what Medicare Part D beneficiaries pay. This $2,000 cap is significant for a few specific reasons:
- The elimination of unlimited exposure in the “catastrophic” phase: Pre-2024, the standard was 5% owed on coinsurance on brand-name drugs once the cap was hit. However, now that beneficiaries reach the catastrophic coverage phase of Part D, as covered by the Medicare Rights Center, this extra exposure is $0.
- There is a large beneficiary share: Around 11 million people are expected to hit the 2,000 cap in 2025, meaning the collective projected savings of $600 per person amounts to nearly $7 billion total.
- The new cap will be indexed annually: While $2,000 is the current cap, future increases will be tied to changes in Part D costs, and as more drugs get added.
This cap isn’t a catch-all, though. It only applies to Part D-covered outpatient drugs, which excludes quite a few common medicines, such as injectables and infused therapies. Those fall under Part B. On top of this, $2,000 is still a significant amount of money for many people’s budgets, and reaching this cap does not necessarily alleviate financial stress.
Specific disease impact
Another impact of the new $2,000 cap will specifically be of benefit to those who require treatment for high-cost conditions that often require specialty or biologic therapies. Diseases related to the autoimmune system, rare cancers, multiple sclerosis, chronic inflammatory diseases, and others are common examples. For perspective, data gathered on cancer treatments indicates an average cost of anywhere between $1,000 and $20,000 per year for various treatment routines. A cap on some related treatments can make a significant difference.
Future cap increases
Additionally, because the $2,000 limit is indexed, it will most likely increase over time. The Final Calendar Year 2026 Part D Redesign Program outlined that the cap is projected to be $2,100, for instance. This indexing is meant to protect against inflation and rising drug prices, but it’s not guaranteed to keep an even pace under all conditions amidst economic uncertainty and increasing prices.
Factors driving drug price increases
The indexing of the cap under Part D is meant to combat inflation and price hikes. Should the price of drugs increase at a faster rate than the indexing can match, though, enrollees with persistently high drug needs may face increased pressure. There are a few current trends driving high drug prices in the U.S.
Market concentration and generic access delays
One crucial factor has been single-source drugs, medicines that have no generic or biosimilar competition. When a drug remains protected, whether by exclusivity, patents, or regulations, the manufacturer of that drug commands pricing power. They aren’t impacted by standard supply and demand laws, such as the downward pressure that comes from competitors introducing similar products.
A 2023 Kaiser Family Foundation data study compiling information going back to 2021 found that 10 drugs accounted for nearly a quarter of gross Part D spending. The top 100 accounted for an additional 61%. This concentration creates a pricing issue all on its own. To account for this, the Medicare Payment Advisory Commission has stated that high patient cost sharing can act as a barrier to treatment, going so far as to formally recommend a redesign of Part D. That, however, will take time.
Structural issues in Part D design
Going beyond just market concentration, there are a few structural issues with the design of Part D that have been alluded to through the Pan Foundation’s coverage of the reforms. More specifically:
- Coinsurance vs flat copays: For many expensive therapy options, cost sharing is via coinsurance rather than fixed copays, meaning that if a list price rises, so does the patient’s liability.
- Gross-price basis for cost sharing: Many plans also calculate patient coinsurance on a gross basis before rebates, even though the net cost of the plan may be lower, thereby shifting the rebate benefit entirely to the plan rather than the patient.
- Rapid advancement through differing coverage phases: Since cost-sharing is based on gross prices, high-cost therapies can accelerate patients’ progressions through the deductible and initial coverage phases straight into the catastrophic phase.
- Plan retaliation risk: It’s possible that to offset risk created under the $2,000 cap, Part D plans could raise premiums, impose higher deductibles, increase exclusions, or enact other measures that can cause constraints.
Ultra-expensive drug spending patterns
Finally, another factor increasing drug prices nationwide is the trend of ultra-expensive drug options. Cutting-edge treatments can sometimes use drugs such as biologics, gene therapies, or targeted specialty disease treatment options. These drugs often come at a high price point given their novelty.
Given the small number of drugs resulting in the most spending, policy efforts aimed at even a modest subset of the high-cost drugs could yield sizable savings if policymakers were to focus on it.
Medicare drug price negotiation program
One key component of the Inflation Reduction Act is giving Medicare the authority to negotiate prices for selected high-cost, single-source drugs under Part D and, potentially, Part B in the future. Direct negotiation by Medicare used to be prohibited, so this is a relatively new breakthrough.
In August of 2024, the Centers for Medicare and Medicaid Services announced a negotiated Maximum Fair Price for 10 Part D drugs, which are set to take effect starting at the beginning of 2026. These drugs run the gamut and treat conditions including diabetes, heart failure, cancer, autoimmune disorders, and more. The negotiation dictates that Part D plans need to cover all dosage forms and strengths of the selected drugs. Full details are still emerging, but this price point is meant to reflect the middle ground between preserving incentives for innovation and patient affordability.
Additionally, there are plans for expansion, as 15 drugs have already been selected for a second round of negotiation, to take effect in 2027. Popular drugs, including Ozempic, Wegovy, and specialty drugs meant to treat cancer, asthma, COPD, and more, made the list. This negotiation process is structured with multiple steps, though, meaning there is plenty of back-and-forth.
2027 isn’t where negotiations will end. The Centers for Medicare and Medicaid Services are allowed to select up to 20 additional drugs to consider for 2028 and later, meaning the number of negotiated drugs will eventually increase. Legal and political challenges will likely slow progress, but if the negotiations work as intended, they can help tighten the link between risk, price, and exposure.
Medicare Part D premium outlook for 2026
While the $2,000 out-of-pocket cap and negotiation for future pricing help reduce immediate costs, premiums are the dark horse of this situation. Premiums are paid by all enrollees regardless of drug use intensity, which is why they are such a huge factor and worth diving deeper into.
Premium increases and stabilization efforts
In a study of data related to premiums, deductibles, and cost sharing from 2019 to 2025 conducted by the National Library of Medicine, plans seemingly responded to premium constraints by raising deductibles. Adjusting cost-sharing levels was another method. This matters because the Inflation Reduction Act includes a premium stabilization provision that’s meant to offset hikes in the near future, but the cost may be shifted elsewhere in 2026.
The negotiation program will certainly help dampen some risk, but it will be gradual as only a small number of drugs enter the negotiation process annually. Medicare Advantage and Part D insurers will most likely need to leverage formularies and network design in order to manage costs so that premium inflation is tempered.
A further cause of concern lies with the risk of consolidation in the Part D insurer space. As plans start to face higher downside risk under new regulations, smaller plans may struggle for funding, leading to a natural consolidation amongst the larger players. This will inevitably lead to reduced competition in plan pricing and cost-sharing innovations.
Obesity medication coverage developments
One of the more recent visible policy debates in the drug market has centered on GLP-1 and GLP-1-like drugs, including Ozempic, Wegovy, Zepbound, and other similar drugs. These are typically used for weight loss and diabetes purposes, but they have exploded in use and spending in recent years.
Under the Biden administration, it was proposed that these drugs be extended to Medicare Part D coverage, but this ruling was overturned by the Trump administration earlier in 2025, with little detail as to why. Two of those drugs were included in the second round of negotiations for 2027, so the future is unclear, but optimists are hopeful that Medicare patients will pay less.
Patient impact and drug access challenges
It’s easy to forget that behind all the policy and regulations are real people whose lives are at stake. Whether or not an individual can afford medication and stick to a regimen has real health impacts. Large copays and coinsurance have repeatedly been shown to prompt medicine skipping or rationing, which can affect the outcome of treatment.
Naturally, certain medications will be more vulnerable than others, depending on whether they are brand-name, specialty, orphan drugs, or more. Disease progression, complications, hospitalizations, and a general loss of quality of life are all examples of the impact this can have.
Geographic and income disparities
Cost disparities are not distributed evenly among the population. Beneficiaries with lower incomes are especially vulnerable to price swings. Enrollees in rural or underserved parts of the community may have fewer plan choices, limited access to pharmacies, or less competition in the provider space, all factors that can impact costs.
These out-of-pocket expenses can intersect with other budget items, such as housing or transportation, which can put a beneficiary in the tough position of needing to choose between their health and livelihood.
Looking forward: 2026 and beyond
The introduction of a $2,000 out-of-pocket cap in 2025 marks a major landmark in how Medicare is handling drug cost exposure. Millions are projected to benefit by the end of the year, with billions potentially being saved. As more drug prices continue to be negotiated in the coming years, it’s possible that more systematic control is on the horizon to help curb steep drug prices.
However, many patients can still be impacted by shifting costs, the slow pace of price negotiations, and rejection of coverage for certain medications. Continued political efforts, stability of negotiations, and monitoring of the Part D structure will all be required to ensure the maximum number of patients benefit from the changes.
This story was produced by CheapInsurance.com and reviewed and distributed by Stacker.
RELATED CONTENT: Report: Black Americans Are More Likely To Feel The Impact Of Rising Prescription Costs
