What the Inflation Reduction Act actually did to Medicare

In August 2022, President Biden signed the Inflation Reduction Act, a law that made changes to how Medicare operates and what it pays for. The word "raid" suggests money was taken out of Medicare's trust fund to pay for something else — that is not what happened. Instead, the law gave Medicare new powers to negotiate drug prices directly with pharmaceutical companies, and it changed how much beneficiaries pay for certain medications. At the same time, it reduced what the government reimburses providers for some services. These changes affect your out-of-pocket costs and what your doctor gets paid, but they work differently depending on which part of Medicare you use.

The confusion around the word "raid" comes from the fact that the law did reduce payments to hospitals and other providers. Some people interpreted this as Medicare taking money from one place to fund another. What actually happened is that Congress offset the cost of lower drug prices by cutting provider reimbursement rates. The trust fund itself was not emptied or diverted to a different program.

Key Takeaways

  • The Inflation Reduction Act let Medicare negotiate prices on certain expensive drugs, which lowered what beneficiaries pay out of pocket starting in 2024.
  • The law capped what seniors pay annually for insulin at $35 per month, regardless of the actual price Medicare negotiates.
  • Medicare's trust fund was not emptied or redirected; instead, the law changed payment rates to hospitals and other providers, which affects how much they receive.
  • The drug price negotiations explore only to a limited list of medications each year, not all drugs covered by Medicare.
  • Reimbursement cuts to hospitals and providers have raised concerns about whether some facilities will reduce services or close, though this varies by region and facility type.

How drug price negotiation works under the new law

Starting in 2024, Medicare gained the power to negotiate prices directly with drug manufacturers for certain high-cost medications covered under Part B and Part D. Previously, Medicare was legally prohibited from doing this — the law had to change first. The negotiation process is not a one-time event; it happens annually, and the negotiated prices take effect the following year.

In the first year, Medicare negotiated prices on ten drugs: Atorvastatin, Juniper, Lisinopril, Metformin, Amlodipine, Albuterol, Fluticasone/Salmeterol, Gabapentin, Sertraline, and Pravastatin. The list grows each year — by 2026, Medicare will negotiate on up to 20 drugs, and by 2028 and beyond, up to 60 drugs per year. The drugs selected are typically those with the highest spending in Medicare and no generic or biosimilar alternatives available. If you take one of these medications, your out-of-pocket cost at the pharmacy may be lower than it was before negotiation.

The $35 insulin cap and other cost limits

One of the most direct changes to beneficiary costs is the insulin cap. If you are on Medicare and use insulin, your monthly cost is now capped at $35, regardless of what Medicare actually pays the manufacturer. This applies to all insulin products covered under Medicare Part D. Before this law, some seniors paid $100 or more per month for insulin; the cap took effect when ready in 2023.

The law also introduced an annual out-of-pocket spending cap for Part D beneficiaries. Starting in 2024, once you have spent $2,000 out of pocket on covered drugs in a calendar year, Medicare covers 95 percent of the cost of additional drugs for the rest of that year. Previously, there was no hard cap — beneficiaries in the "catastrophic" phase paid 5 percent coinsurance with no upper limit. This change means your maximum annual drug spending is now predictable.

What changed in hospital and provider payments

The Inflation Reduction Act did not take money out of the Medicare trust fund to pay for drug negotiation or the insulin cap. Instead, it reduced what Medicare pays certain providers. The largest cuts affected hospital outpatient departments, which saw reimbursement reductions of up to 2 percent annually for several years. Dialysis centers, ambulatory surgery centers, and other facility types also faced payment adjustments.

These payment reductions are separate from the drug negotiation savings. Medicare did not raid its own account; rather, Congress decided to offset the cost of lower drug prices by paying providers less for services. Whether this affects your care depends on where you live and what type of facility you use. Some hospitals and providers absorbed the cuts without changing services. Others have raised concerns about their ability to maintain staffing or expand services, though widespread closures have not materialized in most regions.

The trust fund and long-term solvency

Medicare's Hospital Insurance Trust Fund (Part A) has a separate financial status from the drug and outpatient benefits (Parts B and D). The trust fund pays for inpatient hospital care, skilled nursing, hospice, and home health. The Inflation Reduction Act did not redirect money from this fund to other programs. Instead, the payment reductions to providers were designed to slow the growth of Medicare spending overall, which theoretically extends the life of the trust fund.

The Congressional Budget Office estimated that the Inflation Reduction Act would reduce federal spending on Medicare by tens of billions of dollars over ten years, primarily through the provider payment cuts. This reduction does not mean beneficiaries lost coverage; it means the program pays less per service. The trust fund's solvency date — when incoming payroll taxes no longer cover outgoing benefits — is a separate question that depends on demographic trends, wage growth, and future legislative changes.

Which drugs are affected and which are not

The negotiated drug list is limited and grows slowly. In 2024, only ten drugs were included. If you take a medication not on the negotiation list, your cost did not change because of this law. Most generic drugs and many brand-name drugs remain outside the negotiation process. The drugs selected are those with the highest total spending in Medicare and those without generic or biosimilar alternatives — meaning they have patent protection and manufacturers have pricing power.

Manufacturers can still raise prices on drugs not yet in the negotiation pool. The law does not prevent price increases; it only allows Medicare to negotiate on a growing list of high-cost drugs. If you are unsure whether your medication is on the negotiated list, you can check the Centers for Medicare and Medicaid Services (CMS) website or ask your pharmacist.

How this affects your premiums and deductibles

The Inflation Reduction Act did not directly change Part B or Part D premiums for most beneficiaries in 2024, though the long-term effect on premiums is uncertain. Lower drug costs for Medicare as a whole could theoretically reduce the need for premium increases, but premiums are set annually based on projected spending, and many factors influence them beyond drug prices.

Part D deductibles and coverage gaps (the "donut hole") were not eliminated by this law, though the annual out-of-pocket cap of $2,000 does provide a new safety net. If you reach that cap, you no longer face unlimited coinsurance. Some beneficiaries with high drug costs may see their annual spending stabilize because of this cap, even if their monthly premiums did not change.

Frequently Asked Questions

Did Medicare lose money because of this law?

Medicare's trust fund was not emptied. Instead, the law reduced what Medicare pays hospitals and other providers for services, which offset the cost of lower drug prices. The trust fund's financial status depends on payroll tax revenue and total spending, not on whether drug prices are negotiated.

Will my doctor stop accepting Medicare because of lower payments?

Some providers have expressed concern about payment reductions, but most continue to accept Medicare. The impact varies by region and facility type. If you are concerned about access to a specific provider, contact their office directly to confirm they still accept Medicare.

Can I get the $35 insulin price if I am not on Medicare?

The $35 insulin cap applies only to Medicare beneficiaries on Part D. People with private insurance or Medicaid may have different costs. Some states and private insurers have adopted similar caps, but you should check your own plan.

What happens if a drug manufacturer refuses to negotiate?

If a manufacturer refuses to negotiate a price for a drug selected by Medicare, the law imposes a tax on the manufacturer's sales of that drug. This penalty is designed to encourage participation, though some manufacturers have challenged the law in court.

Will more drugs be added to the negotiation list?

Yes. The law requires Medicare to negotiate on ten drugs in 2024, 15 in 2025, 20 in 2026, and up to 60 drugs per year by 2028. The drugs selected will be those with the highest spending and no generic alternatives available.