AARP estimates that Medicare's new $2,000 cap on out-of-pocket drug costs could save patients thousands.

• According to a report from AARP, Medicare patients who exceed the $2,000 cap on out-of-pocket spending for prescription drugs could experience substantial savings.
• The research indicates that increasing the maximum spending limit for Medicare could greatly benefit older adults with cancer, rheumatoid arthritis, and other severe health conditions who struggle to afford expensive medications.
• One of the most significant provisions in President Joe Biden's 2022 Inflation Reduction Act is aimed at reducing high drug costs.

According to a report released Thursday by AARP, Medicare patients who exceed the $2,000 cap on out-of-pocket spending for prescription drugs could experience significant savings, even if their premiums increase.

The cap could greatly benefit older adults in Medicare who face high costs for cancer, rheumatoid arthritis, and other serious conditions. These U.S. patients pay significantly more for prescription drugs than those in other developed nations.

The limit took effect at the start of the year and is one of the most significant provisions in President Joe Biden's 2022 Inflation Reduction Act, aimed at reducing high drug costs, including a new $35 monthly cap on insulin and Medicare drug price negotiations with manufacturers.

According to a report, 94% of the over 1 million Medicare Part D enrollees in 2025 are expected to reach the new cap, resulting in lower out-of-pocket costs, including premiums and cost-sharing, and an average savings of $2,474. This represents a 48% decrease in their total out-of-pocket costs, as analyzed in the report using plan enrollment and premium data, among other information.

The 1 million tally does not include Medicare beneficiaries who receive a specific low-income subsidy or those in employer waiver plans.

According to the report, approximately 62% of the 1 million enrollees in Part D will save an average of over $1,000 in 2025, while 12% will save more than $5,000. However, the remaining 6% of enrollees who are projected to reach the new cap are expected to have higher out-of-pocket costs, with an average of $268 in additional spending in 2025.

In 2025, it is estimated that 95% or more of Part D enrollees in 33 states and Washington, D.C. will reach the cap and have lower total out-of-pocket costs.

"By offering these savings, patients can allocate their funds to other crucial expenses, such as food or rent, without having to make trade-offs," said Leigh Purvis, prescription drug policy principal at AARP, in an interview. "This has a significant impact, particularly for a population with a fixed income."

Medicare beneficiaries have a median income of approximately $36,000 per year, she stated.

Despite an increase in Part D premiums in 2025, AARP stated that the savings come from changes in Medicare negotiations.

Critics have attempted to attribute the premium increases and higher Medicare costs to the law, but a report revealed that the lower out-of-pocket expenses for most patients who exceed the $2,000 cap will outweigh the higher premiums.

As new negotiated prices for the first round of drugs go into effect in 2026, the positive effect will only grow larger, according to the report.

"The Medicare program is saving a significant amount of money, making it a larger story than it initially seems, as these savings benefit a wide range of individuals in various ways," Purvis stated.

In 2025, 3.2 million Medicare recipients will experience savings due to the out-of-pocket cap, and this number is projected to rise to 4.1 million enrollees by 2029, according to a report from AARP.

According to 2023 data from KFF, approximately 66 million people in the U.S. are covered by Medicare, and 50.5 million patients are enrolled in Part D plans.

Medicare Part D prescription drugs are subject to a new price cap, except for those administered in hospitals or other healthcare settings, such as anesthesia and chemotherapy.

Medicare beneficiaries typically had to spend $7,000 or more on prescription medications before qualifying for catastrophic coverage, which is when insurance covers most of the drug's cost.

Patients are typically required to pay a small co-payment or a percentage of a drug's cost, which is usually 5%, under this coverage.