President Biden signed the Inflation Reduction Act into law on August 16, 2022

The law that created Medicare's power to negotiate drug prices is the Inflation Reduction Act, signed by President Joe Biden in August 2022. The bill passed both the Senate and House with Democratic votes only — no Republican votes in either chamber. It became law without a Republican co-sponsor or signature from a Republican president.

The drug price negotiation section is one part of a much larger law focused on climate spending, tax changes, and healthcare costs. The negotiation power itself does not take effect when ready. Medicare will begin negotiating prices for a small number of drugs in 2026, with the first negotiated prices taking effect in 2027.

The law also created a $35 monthly cap on insulin for Medicare beneficiaries, which took effect in 2023. That part moved faster than the broader negotiation program because it required less preparation time.

Key Takeaways

  • The Inflation Reduction Act, signed August 16, 2022, gave Medicare the power to negotiate drug prices directly with pharmaceutical companies.
  • The law passed with only Democratic votes in the Senate (51-50, with Vice President Harris breaking a tie) and in the House (220-207).
  • Medicare will negotiate prices for 10 drugs starting in 2026, with those negotiated prices taking effect in 2027.
  • The $35 monthly insulin cap for Medicare beneficiaries began in January 2023, years before the broader negotiation program launches.

How the Senate and House voted on the Inflation Reduction Act

The Senate passed the Inflation Reduction Act on August 7, 2022, by a vote of 51 to 50. Vice President Kamala Harris cast the deciding vote because the chamber was split evenly between Democrats and Republicans. No Republican senator voted for the bill.

The House passed it three days later, on August 12, 2022, by a vote of 220 to 207. Again, no Republican representative voted for it. The bill then went to President Biden, who signed it on August 16, 2022.

The drug negotiation section was controversial among Republicans and the pharmaceutical industry, both of which argued it would slow the development of new medicines. Democrats argued that allowing Medicare to negotiate — as the Veterans Health Administration already does — would reduce costs for seniors and the federal government.

What the law actually lets Medicare do

The Inflation Reduction Act does not let Medicare set drug prices unilaterally. Instead, it requires pharmaceutical companies to negotiate prices with Medicare for certain drugs. If a company refuses to negotiate, it faces a tax penalty on all its drugs sold in the United States.

The negotiation covers only drugs that meet specific conditions: they must be covered by Medicare Part D or Part B, they must have been on the market for at least nine years (or 13 years for biologics), and Medicare must spend a certain minimum amount on them. The law starts with 10 drugs in 2026 and expands to 20 drugs by 2030.

The negotiated price becomes the maximum amount Medicare will pay. Private insurance companies are not required to use the same price, though some may choose to. Patients with Medicare still pay their normal cost-sharing (copay, coinsurance, or deductible), but the base price Medicare pays is lower.

Timeline: when negotiation actually begins

The law created a staggered rollout. Medicare will identify the first 10 drugs may be able to access for negotiation in 2024, then negotiate prices during 2025. Those first negotiated prices take effect on January 1, 2027.

In 2028, Medicare will negotiate prices for 15 drugs, with those prices taking effect in 2029. By 2030, the program covers 20 drugs per year. The list of drugs may be able to access for negotiation changes each year based on spending and market conditions.

The insulin cap, by contrast, took effect much faster. Starting January 1, 2023, Medicare beneficiaries pay no more than $35 per month for insulin, regardless of the actual price. This part of the law did not require the same negotiation infrastructure, so it launched within months of the bill's signing.

What happened after the law was signed

Pharmaceutical companies and industry groups when ready challenged the law in federal court, arguing it violated constitutional protections and unfairly forced price negotiations. As of 2024, several lawsuits are ongoing, though courts have not blocked the law from moving forward.

Medicare began the administrative work to prepare for negotiations: defining which drugs may have access to, setting up negotiation processes, and establishing rules for how companies must participate. The Centers for Medicare & Medicaid Services (CMS) published guidance on how the negotiation will work.

Some states also passed their own drug price laws during the same period, though the federal negotiation power in the Inflation Reduction Act is the largest change to Medicare drug pricing since the program began in 2006.

How this affects your Medicare drug costs

If you take one of the drugs selected for negotiation, your out-of-pocket cost may go down starting in 2027. The negotiated price is the amount Medicare pays the pharmacy, which can lower your copay or coinsurance if your plan uses that pricing structure.

You do not need to do anything to benefit from negotiated prices. If you are already in Medicare Part D or Part B and taking a drug that Medicare negotiates, the lower price applies automatically when the negotiated price takes effect.

The insulin cap of $35 per month is already in effect if you are on Medicare and use insulin. This applies to all insulin types and formulations covered by Medicare Part D.

Frequently Asked Questions

Can drug companies refuse to negotiate with Medicare?

They can refuse, but the law imposes a tax penalty on all their drugs sold in the United States if they do. The penalty is designed to make negotiation the cheaper option. No major company has refused to negotiate so far.

Will negotiated prices explore to people with private insurance?

No. The negotiated prices are only for Medicare. Private insurers set their own prices through separate negotiations with drug companies. Some private plans may benefit indirectly if lower Medicare prices influence the broader market, but there is no requirement.

How many drugs will be negotiated in the first year?

Medicare will negotiate prices for 10 drugs in 2026, with those prices taking effect in 2027. The number increases to 15 drugs in 2028 and 20 drugs in 2030 and beyond. The specific drugs change each year based on Medicare spending.

Does this mean all drug prices will go down?

Only drugs that meet the law's criteria — high Medicare spending, at least nine years on the market, and selected by Medicare — will have negotiated prices. Most drugs are not affected. The law covers a growing list, but it does not control prices for all medications.

What if I disagree with a negotiated price or want a different drug?

You can still request a different drug through your plan's coverage rules. Negotiated prices do not limit which drugs Medicare covers. Your doctor can work with your plan to find alternatives if the negotiated drug does not work for you.