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Inflation Reduction Act Will Not Cut Benefits—It Will Reduce Medicare Drug Costs

By reducing the price of drugs, Medicare will be able to both spend less and provide better benefits to seniors and people with disabilities.

The Inflation Reduction Act, which the Senate has passed and the House is set to consider later this week, will reduce the cost of prescription drugs that are covered by Medicare, thereby saving money for both the Medicare program and its beneficiaries, and improve Medicare drug benefits. Contrary to some claims, the bill will not cut Medicare benefits or take money away from Medicare.

To the contrary, the bill will improve Medicare drug benefits by limiting the total amount of cost sharing that a beneficiary will be required to pay in any year.

The bill will reduce Medicare’s drug costs in several ways. It will require the federal government to negotiate with manufacturers to obtain lower prices for some high-cost drugs, require drug companies to pay rebates to Medicare if their prices rise faster than overall inflation, and repeal a Trump Administration rule on drug rebates. The bill will also improve Medicare’s drug benefit by placing a $2,000 annual limit on out-of-pocket drug spending, capping out-of-pocket insulin expenses at $35 a month, eliminating cost sharing for vaccines, and expanding eligibility for the low-income drug subsidy. Currently there is no limit on total out-of-pocket or insulin spending. In total, these changes will save the government about $250 billion over ten years and will also lower premiums and cost sharing for Medicare beneficiaries.

Some critics of the legislation have falsely contended that it would cut Medicare benefits and take money away from Medicare. For example, in the Senate debate Senator James Lankford said, “This Inflation Reduction Act takes the savings from this new prescription plan from Medicare and takes it out of Medicare. . . . It literally takes money designed for 76-year-olds on a fixed income and gives them to 26-year-olds and their family.” Similar claims have circulated in political advertisements and on social media.

Assertions like this are inaccurate and have been widely debunked by budget analysts and fact-checking organizations. The Inflation Reduction Act will reduce Medicare spending by lowering the prices of some prescription drugs furnished through the program, not by cutting benefits. To the contrary, the bill will improve Medicare drug benefits by limiting the total amount of cost sharing that a beneficiary will be required to pay in any year. By reducing the price of drugs, Medicare will be able to both spend less and provide better benefits to seniors and people with disabilities.


© 2020 Center on Budget and Policy Priorities

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

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