Impact of 2022 Inflation Reduction Act on Medicare

The insurance sector braces itself for another couple of years of stormy weather as they struggle to keep Medicare Drug Plans and Medicare Advantage Plans afloat.

2026 commemorates the 20th birthday of Medicare Part D – the prescription drug benefit of the nation for seniors and individuals with disabilities. As a Medicare beneficiary advisor since 2005, I have observed the program’s transformations over time. However, the modifications taking place in 2025 and 2026 are unparalleled.

These modifications are not subtle; they originate from the Inflation Reduction Act (IRA) that was passed in 2022 to reduce prescription drug prices. Despite the critical reforms included in the law, it has set off a wave of cost transfer that is impacting Medicare beneficiaries drastically.

Here’s an overview of what’s happening:

• Fixed copays are being phased out by most plans and replaced with coinsurance, which means you now pay a percentage of the drug’s cost. If you were charged $47 per month for a brand-name drug with no deductible last year, you could now be on the hook for up to a $615 deductible and up to 25% coinsurance until you reach the 2026 maximum out-of-pocket of $2100.

• Deductibles are skyrocketing. The maximum deductible for Part D plans will rise to $615 in 2026.

• Supplemental benefits are on the decline. Medicare Advantage plans are cutting benefits such as dental, vision, hearing, and wellness to counterbalance the financial strain caused by the cost-shifting under the Inflation Reduction Act.

• Plan structures are evolving. Over 80% of standalone drug plans now use coinsurance for multiple tiers, and Medicare Advantage plans are following their lead.

Here’s a practical illustration: A tier 3 drug with a retail price of $643 still has a $47 copay with no deductible this year under one of Iowa’s most popular plans. We cut costs by using mail order, which reduces our annual expense to $470. However, the insurance company is losing money and aims to halt the financial bleed in 2026 to preserve its future offerings. The same plan in 2026 will require a $300 deductible and 20% coinsurance, raising our annual cost to $1555 unless we switch plans.

What’s driving these changes? The 2022 Inflation Reduction Act capped out-of-pocket drug costs at $2,000 for 2025 and $2100 for 2026. However, it also forced insurers to shoulder more of the cost. While insurers have a revenue cap of 15% for administrative expenses and profits, there are no limits on how much they can lose. This resulted in numerous insurers reporting losses in 2025. To survive, they are redesigning their plans in ways that shift costs back to Medicare beneficiaries.

Only a mere 16% of Medicare beneficiaries are projected to save between $1 and $1800 under the new law. Conversely, approximately 29% will face higher costs. Meanwhile, benefits are deteriorating for approximately 54% of all Medicare beneficiaries with Medicare Advantage plans, a group that includes myself.

To many, this situation is reminiscent of a bait-and-switch tactic. We were reassured with promises of affordability, predictability, and relief. Yet, we find ourselves in a reality of higher deductibles, volatile coinsurance, and reduced benefits. The bait was the promise of lower drug costs. The switch is the cost-shifting, passed down from insurers to members as the plans struggle to stay afloat under the new financial pressures.

During this annual enrollment period from October 15th – December 7th, it might be prudent to schedule a discussion with your insurance agent or SHIIP volunteer to review your coverage, especially if you use one or more brand-name drugs.

If the current government and Congress truly want to safeguard seniors, they must acknowledge the fact that cost doesn’t vanish–it merely shifts. At the moment, it’s shifting in an unfavorable direction.

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Mark Rohde is a Medicare insurance agent with Assured Partners in Marshalltown.