Opinion: Breaking down the Inflation Reduction Act’s impact on Medicare

Adam Kyle

If you are over 65 and/or are on a Medicare Advantage plan, a Medicare Advantage Prescription Drug plan or a Stand-Alone Prescription Drug Plan, you may have noticed significant changes in your coverage and premiums for 2025 and 2026. The usual culprits are to blame: inflation, rising health care costs, etc., but there’s one extremely large factor at play that most don’t know about.

Almost everyone has heard of the Biden-era bill called the Inflation Reduction Act, but most people don’t know it’s impact on health care, specifically, Medicare.

One of the IRA’s aims was to lower out-of-pocket drug costs for Medicare recipients by doing two things:

1. Allowing Medicare to negotiate with drug manufacturers to lower the cost of expensive, name-brand drugs. As of 2026, there are ten drugs affected by this new negotiation rule.

2. Lower the maximum out-of-pocket threshold for all Part D coverage.

The negotiation of certain name-brand drugs is a huge step forward (at least as far as immediate impact) for beneficiaries on these medications. Whenever someone would tell me they were on Eliquis, I would mentally prepare myself to break the news to them that their projected drug costs for the year would be high.

Perhaps most noticeable to the beneficiaries that pay attention to their benefits from year-to-year was the Part D catastrophic coverage changes. Before the Inflation Reduction Act, you had four phases of drug coverage you could hit in a year’s time: the deductible, initial coverage, coverage gap and catastrophic phases. Drug costs would vary in each of these phases.

The main issue was in the coverage gap (colloquially called the donut hole), members would have to pay a significantly higher portion of their drug costs. Right before the IRA, members would pay 25% of the cost of their meds. For cheaper drugs like statins, this wouldn’t be an issue. But, if you were on a biologic like Cimzia, 25% of the cost could be in the thousands.

Once you got out of the coverage gap, you went straight into catastrophic coverage where you would pay 5% of the cost of your medications for the rest of the year. Then the next Jan. 1, it would start all over again. So, under this system, you never really hit a maximum out-of-pocket.

The IRA changed that. In 2024, the true maximum out-of-pocket for Medicare Part D was $8,000 for the year. Then, in 2025, it was dramatically reduced to $2,000. While great for those with expensive meds, there was a market reaction since insurance companies are now having to pay for a greater share of their customers’ drug costs.

How did insurance companies deal with this shift in expenses? They did the obvious, raised prices and reduced benefits in other areas.

When we as Medicare plan brokers saw the 2025 product catalog for this area (when the most drastic changes hit), almost every single one of the (close to) 80 MA, MAPD and PDPs saw a combination of higher premiums, deductibles and reduction of extra benefits.

For the Part D, the main changes were an increase in premiums and the inclusion of a Part D deductible.

For MA and MAPD plans, which are an option to cover the inpatient and outpatient side of Medicare, we saw higher maximum out-of-pocket amounts, but the largest hits didn’t affect Medicare-covered health care services. MA plans can offer extra benefits (benefits the government’s original Medicare doesn’t pay for) like coverage for dental, gym memberships and OTC allowances. These allowances were severely impacted by the IRA changes.

While we know these changes to drug pricing will have a positive impact for the time being, there’s still some debate as far as the long-term impacts on the Medicare industry.

Adam Kyle is a broker for Medicare Health Plans in southwest Missouri. He can be reached at adam@kyleinsuranceservices.com.