This is how much Medicare recipients save after price reductions on 10 common medications

The Biden administration last week announced significant price cuts on 10 of the most expensive and commonly prescribed drugs for people covered by Medicare Part D.

The list includes drugs for conditions such as heart failure, blood clots, diabetes, arthritis and Crohn's disease. The 10 drugs were taken by 9 million people with Medicare insurance in 2023.

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

The negotiated prices will take effect on January 1, 2026.

“For years, millions of Americans have had to choose between paying for medicine or affording food while the pharmaceutical industry blocked Medicare from negotiating prices on behalf of seniors and the disabled. But we fought back – and won,” President Joe Biden said in a statement.

Rising drug prices can be particularly problematic for older adults. In a 2023 survey, about one-fifth of adults ages 65 and older said they stopped taking medications because of the high costs.

“I can't tell you how many stories I've heard of people who haven't been 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 generational issue to make sure seniors and people with disabilities in this country can afford their drug care,” Chiquita Brooks-LaSure, CMS administrator, told Verywell.

How much will people save?

The negotiated price for each drug is at least 38% below the drug's list price in 2023. The biggest reduction will be for the diabetes drug Januvia, where costs will drop by 79%.

Importantly, however, it is not possible to directly compare the two costs. The list price of a drug is often higher than what patients pay at the pharmacy because drug manufacturers and insurers may negotiate discounts and rebates.

The price 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 covers part of the cost of the drug while the patient pays the rest. If the manufacturer lowers 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 drug price negotiations take effect, every Medicare beneficiary can expect to pay the same price for the 10 drugs.

The first of several drug price negotiations

The Inflation Reduction Act, which took effect in 2022, gave Medicare the authority to negotiate directly with manufacturers to reduce the cost of certain drugs for which there are no generic alternatives.

The 10 drugs were selected from a list of the 50 drugs that cost the most money under Medicare Part D.

Additional drug prices are expected to be negotiated in the coming years. CMS will negotiate prices for 15 more drugs in 2027, 15 more in 2028, and 20 more each year thereafter. The next list of drugs to be negotiated will be announced in February 2025.

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

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

“Every day, 11,000 Americans turn 65, and we look forward to further drug price negotiations in the coming years that will make medications even more affordable for our rapidly growing older population,” the National Council on Aging said in a statement.

Further health care cost reforms for Medicare policyholders

The move comes alongside other drug pricing reforms included in the Inflation Reduction Act. Last year, the administration announced a $35-per-month price cap on insulin. Medicare beneficiaries will also be able to get certain preventive vaccinations for free, including shingles, flu and RSV.

If people with Medicare Part D coverage have particularly high drug costs, they may enter the “coverage gap phase.” In years past, they were expected to pay 100% of their drug costs out of pocket during this phase. Now, they will pay 25% of their drug costs out of pocket. In 2025, CMS will eliminate the coverage gap phase, so enrollees will see no change in cost-sharing expectations for each of their drugs.

Part D enrollees who were in the “catastrophic coverage phase” — meaning they had even higher health care costs — were expected to pay 5% of drug costs out of pocket. In 2024, that out-of-pocket cost is capped at about $3,500. Next year, that cap will drop to $2,000.

When health care costs are even higher, people move from the coverage gap phase to the catastrophic coverage phase. In past years, Part D enrollees were expected to continue paying 5% of their drug costs out of pocket even during this phase. In 2024, that out-of-pocket cost is capped at about $3,500 for people with catastrophic coverage. Next year, that cap will drop to $2,000.

“For Americans suffering from diseases like cancer, who often reach $2,000 in the first few months, this is a huge savings,” Becerra said at a press conference.

CMS is also considering new rules that would limit the increase in Medicare Part D premiums and provide rebates to enrollees if drug prices rise more than inflation.

The rates announced last week apply only to people covered by Medicare Part D. Brooks-LaSure said it is possible that private insurers will follow CMS's example and try to negotiate with pharmaceutical companies to reduce costs for their insureds.

However, she said that many people with private health insurance already pay lower prices for prescription drugs and that those costs tend to increase when they switch to Part D.

“This has been a challenge for the Medicare system,” she said. “The changes to drug negotiations and the prescription drug copayment cap are changes that I think were long overdue for the Medicare program. Many of these reforms are already in place for the commercial market.”

The Congressional Budget Office estimated that 13 of the 1,300 new drugs expected to be introduced in the next 30 years will not make it to market due to price negotiations.

“I believe our pharmaceutical industry is thriving and innovative. I hope that knowing that more Medicare beneficiaries will receive the drugs they make will encourage them to continue to innovate,” Brooks-LaSure said.