Medicare’s New $2,000 Cap on Prescription Drug Costs

Heralded as a "game changer," it's just a small step in the right direction

Photo credit: Images Money, flickr (2011)

On the last day of 2024 the White House issued a “Statement from President Biden on Medicare’s New $2,000 Cap on Prescription Drug Costs Taking Effect.”¹ It reads in part:

This week, we take another step closer to an America where everyone can afford the quality health care they need, as Medicare’s new $2,000 cap on prescription drug costs from my Inflation Reduction Act goes fully into effect.

And continues:

Before I took office, people with Medicare who took expensive drugs could face a crushing burden, paying $10,000 a year or more in copays for the drugs they need to stay alive. When I took on Big Pharma and won, we changed that, capping seniors’ out-of-pocket spending on drugs they get at the pharmacy for the first time ever. Costs were capped at about $3,500 in 2024, and in just the first six months of the year, this policy saved people with Medicare $1 billion in cost-sharing. On January 1, 2025, the cap on drug costs fully phases in, and costs are now capped at $2,000 per year. As a result, 19 million people are expected to save an average of $400 each. That’s a game changer for the American people.

There is no doubt that this represents movement in a positive direction, but the President’s text requires two edits. He meant to say “… we take another tiny step closer to an America where everyone can afford the quality health care.” And he should have written “That’s a game changer for the less than 20 percent of the American people who are over the age of 65 and enrolled in Medicare.”

So, the change referred to has positive impact on a fraction of the U.S. population. To clarify and put into perspective, the cap on drug costs still leaves makes seniors responsible for an average of $166 monthly in drug costs (the legislation provides a conditional mechanism for amortising larger individual costs over several payments), and leaves more than 80 percent of the U.S. population subject to the often prohibitive costs of prescription drugs.²

How does this compare to other developed countries? Here are just a few examples.

Ireland: The Republic of Ireland provides a Drugs Payment Scheme that applies to individuals, but also to individuals and their entire family: “you and your family only have to pay a maximum of €80 each month for approved prescribed drugs and medicines, and certain appliances.” (Children are included if under the age of 19 and under 24 if enrolled in full-time education.)

Germany: Health insurance is compulsory in Germany and there is a two-tiered system: statutory health funds, to which the vast majority of the population subscribes, and private health insurance. Drug costs are governed by the principle that costs should not place an undue burden on any individual, and therefore must never exceed two percent of an individual’s income in any given year. For individual drug purchases a co-pay is required, with a minimum of 5€ and maximum of 10€, but never more than the actual cost of the drug.³

France: The national health insurance system, Assurance Maladie, provides 100 percent reimbursement to individuals for “drugs recognised as irreplaceable and expensive,” and lesser percentages for drugs with less evidence of effectiveness. If a generic drug is available for a brand recommended by a physician, full reimbursement applies; otherwise an individual chooses to accept a lesser rate of reimbursement in order to have the named drug.⁴ Either way, most individuals enrolled in the national health insurance plan will also generally receive some level of reimbursement from their private mutuelle or “top-up” insurance. Similar regulations apply to medical equipment. (Personal note: I am a permanent French resident and have never been charged for a prescription drug.)

United Kingdom: In three of the nations comprising the United Kingdom, prescription drugs are free to residents: Northern Ireland, Scotland, and Wales. In England a cost of £9.90 per prescription (not per drug) is charged. This latter charge does not apply to individuals over age 60, under 16, under 18 and in full-time education, or women who are pregnant or who have delivered a baby in the prior twelve months.⁵

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So yes, let’s celebrate the implementation on January 1, 2025 of new U.S. regulations governing the costs of drugs for those over age 65 who are enrolled in Medicare.

But let’s also recognise that the change is prejudicial with regard to age and is therefore of limited impact, and quite limited with regard to costs. It is—like the Affordable Care Act—only one tiny step in the direction of joining the rest of the developed world in providing affordable health care to all residents and citizens.

1. “Statement from President Biden on Medicare’s New $2,000 Cap on Prescription Drug Costs Taking Effect,” The White House Briefing RoomL Statements and Releases (31 Dec 2024) https://www.whitehouse.gov/briefing-room/statements-releases/2024/12/31/statement-from-president-biden-on-medicares-new-2000-cap-on-prescription-drug-costs-taking-effect/ (consulted 2 Jan 2025)

2. The statement does not mention the monthly cap for Medicare beneficiaries of $35/month for insulin or free vaccines for Medicare enrolees, both of which went into effect earlier.

3. See “Co-Payments and Exemption from Co-Payments,” Health Insurance Germany https://www.health-insurance.de/statutory-health-insurance/benefits/mandatory/co-payments/ (consulted 2 Jan 2025)

4. “Remboursement des médicaments et tiers payant,” ameli.fr (2 Apr 2024) https://www.ameli.fr/alpes-maritimes/assure/remboursements/rembourse/medicaments-vaccins-dispositifs-medicaux/remboursement-medicaments-tiers-payant#:~:text=Lorsque%20vous%20achetez%20des%20m%C3%A9dicaments%20remboursables%20prescrits%20par%20votre%20m%C3%A9decin,charge%20par%20l'Assurance%20Maladie. (consulted 2 Jan 2025)

5. See the useful summary: “Prescriptions: Who pays what?” Beacon View Medical Centre (3 May 2024) https://www.beaconviewmedicalcentre.co.uk/Resources/prescriptions-who-pays-what-2/#:~:text=In%20England%2C%20there%20can%20be,you%20are%20staying%20in%20hospital. (consulted 2 Jan 2025)

Photo credit: Images Money, Flickr <https://creativecommons.org/licenses/by/2.0/> https://www.flickr.com/photos/59937401@N07/6127242068