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Landmark Bill to Cut Prescription Drug Prices Signed Into Law

AARP CEO hails passage and says measure will bring relief to millions

spinner image jo an jenkins speaking at a press conference at the u s capitol she is flanked by senators amy klobuchar of minnesota and debbie  stabenow of michigan
AARP CEO Jo Ann Jenkins, with AARP volunteers and Sens. Amy Klobuchar, left, and Debbie Stabenow, right, calls on Congress to pass the bill to lower prescription drug prices at the U.S. Senate on July 27.
Stephen Voss for AARP


President Joe Biden signed the Inflation Reduction Act of 2022 on Aug. 16. This historic legislation will help millions of Medicare enrollees better afford their life-sustaining medications, and millions more Americans will be able to pay their Affordable Care Act premiums.

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"This law finally delivers on a promise that was made for decades to the American people," allowing Medicare to negotiate prescription drug prices, said Biden, who was flanked by several senators and House members and an audience that included cabinet secretaries, staff and supporters in the State Dining Room at the White House. Because of this law, Biden said, "seniors are going to pay less for their prescription drugs" and "13 million people are going to continue to save an average of $800 a year on health insurance" because the law extends expanded subsidies on ACA policies.

With most lawmakers away from Washington, D.C. on an August recess, a celebratory signing ceremony has been scheduled for Sept. 6 at the White House. In addition to its health care components, the sweeping law includes some elements of Biden’s Build Back Better initiative, including investments in energy and climate solutions, and makes a number of corporate tax law changes.

"AARP has fought hard to lower prescription drug prices for decades," AARP CEO Jo Ann Jenkins said in a statement after the bill signing. "This is one of the most important pocketbook issues for older Americans — across political aisles and across the country. We have made our voice loud and clear: Drug prices have been out of control, and enough is enough."

The new law passed the U.S. Senate on Aug. 7 in a 51–50 vote, with Vice President Kamala Harris breaking the tie. The measure then cleared the House 220–207 on Aug. 12.

We have made our voices loud and clear: Drug prices have been out of control, and enough is enough.

— Jo Ann Jenkins, AARP CEO

The Inflation Reduction Act for the first time authorizes Medicare to negotiate the prices of some high-cost prescription drugs with pharmaceutical companies, puts an annual $2,000 limit on how much Part D prescription drug plan members will have to pay out of pocket for their medications, and levies tax penalties on drugmakers that increase product prices by more than the rate of inflation. The new law also caps the cost of Medicare-covered insulin at $35 a month and eliminates out-of-pocket costs for most vaccines under Medicare.

Medicare saves hundreds of billions of dollars over 10 years as a result of the new law, with the majority of the savings coming as a result of prescription drug price negotiations and the rebates to Medicare designed to encourage pharmaceutical companies to keep price increases to no more than the rate of inflation, according to an analysis by the nonpartisan Congressional Budget Office. That means beneficiaries will be able to get the same medications they do now, but some of those drugs will cost them, and Medicare, less. The savings will not be the result of any cuts to the Medicare program.

The new law also extends by three years the expanded subsidies and other financial enhancements first included in the 2021 American Rescue Plan that help bring down the costs of health insurance plans in the ACA marketplace. These subsidies are particularly important to those ages 50 to 64, who pay up to three times more for their insurance.

"Our fight isn't over," Jenkins said. "AARP will keep working to make sure the law is implemented, and we’ll keep advocating for additional measures to bring down the price of prescription drugs."

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Here are the main elements of the health care portions of the new law.

Part D changes

For the first time, out-of-pocket costs for Medicare Part D prescription drugs will be capped. Starting in 2025, beneficiaries will not have to pay more than $2,000 a year for their share of Part D drug prices.

spinner image president joe biden signs the inflation reduction act surrounded by a few members of congress
President Joe Biden signs the Inflation Reduction Act of 2022 in the State Dining Room of the White House in Washington, D.C.
Sarah Silbiger/Bloomberg via Getty Images

Beginning in January, most vaccines will be free in Medicare.

The new drug laws caps annual increases in the so-called base premium for Part D prescription drug plans at 6 percent, starting in 2024 and going at least through 2029. However, the base premium may not reflect the total monthly premium that a plan enrollee pays. Because plans' costs can vary widely, some enrollees could see a drop in their premiums while others see significant increases.

The income threshold for beneficiaries to qualify for a subsidy to help pay for Part D out-of-pocket costs is increased from 135 percent of the federal poverty level ($18,347 for an individual in 2022) to 150 percent ($20,385 for an individual in 2022).

Negotiating drug prices

The law authorizes the Health and Human Services secretary to begin negotiating the prices of 10 high-cost prescription drugs in 2023, and the negotiated prices will go into effect in 2026 for Part D medications and in 2028 for drugs covered under Medicare Part B. The number of drugs whose prices will be negotiated on behalf of Medicare will increase in subsequent years, and by 2029 a total of 60 drugs will be subject to negotiated prices.

Inflation rebate

Beginning in October, if the price of a Part D prescription drug is raised by more than the rate of general inflation, the drugmaker will have to rebate to Medicare the amount of the increase above the inflation rate. Rebates for higher-than-inflation price hikes for medications covered under Medicare Part B (usually office-based infusions, such as for cancer drugs) will begin in January 2023.

Health care subsidies extended

For people who buy their health insurance through the ACA marketplaces, the bill extends through 2025 the expanded federal premium subsidy and other financial enhancements made under the American Rescue Plan. For those 50 to 64 years of age, these subsidies provide an average savings of over $950 annually, and all consumers will continue to pay no more than 8.5 percent of their income for ACA health insurance premiums.

Editor’s note: This story has been updated with new information.

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