The Inflation Reduction Act (IRA) will make key changes to improve drug affordability for seniors and people with disabilities who have Medicare. Prior to the IRA, enrollees who entered the Part D catastrophic coverage phase of the Part D benefit and did not receive the Low-Income Subsidy (LIS) paid the most in out-of-pocket costs for their prescriptions. About four percent of non-LIS Part D enrollees, or 1.5 million enrollees, reached the catastrophic coverage phase, paying about $3,093 on average in out-of-pocket costs for their Part D medications across all Part D payment phases. Out-of-pocket spending for Part D drugs was highest for enrollees with certain health conditions and who take certain types of medications. For example, the average out-of-pocket drug spending was highest for enrollees with cystic fibrosis ($9,522 per enrollee). Starting in 2025, the IRA will add an out-of-pocket cap in Medicare Part D, $2,000 in 2025 and indexed annually for inflation thereafter. The IRA also includes other provisions designed to decrease spending for Part D enrollees and taxpayers. Our analysis estimates the combined effect of the IRA provisions modeled in this Report. When these IRA provisions are all in effect in 2025, it will lead to about a $7.4 billion reduction in annual out-of-pocket spending for 18.7 million enrollees (LIS and non-LIS) in 2025. ASPE modeling projects that about 36 percent or 18.7 million of LIS and non-LIS Medicare Part D enrollees will have savings under the IRA provisions in 2025, with their out-of-pocket costs expected to be reduced by about $400 per enrollee. Among this population, 8.4 million enrollees are non-LIS enrollees. They are expected to have an estimated $759 average reduction in out-of-pocket spending in 2025. Among the population of enrollees who are expected to save in out-of-pocket costs for Part D medications, there’s a subset of enrollees who are projected to save at least $1,000. Our modeling estimates that nearly 1.9 million enrollees, which consists mostly of non-LIS enrollees, will save at least $1,000 under the IRA provisions; the average annual out-of-pocket savings for this population in 2025 is projected to be about $2,500 per enrollee, a 66 percent decline relative to baseline. Other features of the IRA not included in these estimates--including drug price negotiation and inflation rebates for drug price increases--are expected to produce additional savings for enrollees and taxpayers.
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