IRA drives ‘substantial’ out-of-pocket cost increases

The Medicare drug negotiation law has driven a “substantial” increase in out-of-pocket costs for many Medicaid enrollees, according to recent research. The findings came amid other indicators that uncompensated care and unpaid out-of-pocket (OOP) payments by Medicare enrollees are increasingly hitting hospitals’ finances.

The findings on Medicare drug costs may be surprising because the Inflation Reduction Act’s (IRA’s) changes to Medicare Part D prescription drug coverage — effective in 2024 and 2025 — included a $2,000 annual out-of-pocket limit.

However, Part D plans have responded to the IRA changes by increasing deductibles or medication cost sharing, according to a new study from researchers at Brigham and Women’s Hospital and Harvard Medical School and published in JAMA Internal Medicine.

Research results

The study’s findings included that mean deductibles for Medicare Advantage (MA) plans increased from $66 in 2024 to $228 in 2025. And the share of MA enrollees with coinsurance for preferred brand-name drugs increased from 2.5% in 2024 to 27.7% in 2025.

Among nine high-spending, non-specialty, brand-name drugs, mean monthly out-of-pocket costs increased from $55 in 2024 to $73 in 2025.

In stand-alone Part D plans, mean deductibles increased from $295 in 2019 to $490 in 2025. And the share of enrollees with coinsurance for preferred brand-name drugs increased from 21.9% to 84%.

Among the same nine high-spending, non-specialty, brand-name drugs, cost sharing increased from $62 in 2019 to $108 in 2025.

The changes followed implementation of the IRA, which aimed to encourage plans to control costs by shifting a greater share of expenditures for patients with high drug spending from the federal government to Part D plans, noted the researchers.

“The present findings suggests that one response by Part D plan sponsors to these increased liabilities was to shift more costs to beneficiaries by increasing deductibles and brand-name medication cost sharing in 2025,” the study said.

What it means

Christopher Cai, MD, one of the authors and a research fellow at Brigham and Women’s Hospital, said in an email that some enrollees with high OOP costs will hit the $2,000 cap and experience zero cost sharing for the rest of the year.

However, he noted “some individuals who might eventually be eligible for the cap might abandon prescriptions in the face of higher short-term cost-sharing and not actually become eligible.”

One-fifth of adults over 65 reported cost-related medication non-adherence, according to a 2022 survey.

The researchers did not estimate total out-of-pocket changes across the entire Medicare population but limited their examination to deductibles and cost sharing for a set of common medications.

“But the scale of new deductibles is substantial,” Cai said. “For example, the proportion of Medicare Advantage Part D enrollees with zero deductible decreased from 77.2% in 2024 to 39.7% in 2025. That means about 40% of MA beneficiaries will have a deductible in 2025 when they did not in 2024.” 

Similar findings

A recent white paper by researchers at USC also found that between 2020 and 2024, stand-alone Medicare drug plans switched from copayment to coinsurance for preferred brands, which shifted cost sharing to beneficiaries.

After the $2,000 OOP cap went into effect in 2025, MA drug plans switched from offering more zero-deductible plans and copayment for preferred brands to fewer zero-deductible plans and much more coinsurance.

“So, patients who previously faced very high out-of-pocket spending now likely have improved affordability,” Erin Trish, one of the authors, and co-director of the Schaeffer Center and associate professor at the USC Mann School of Pharmacy and Pharmaceutical Sciences, said in an email. “But, as a result of those changes, plans increased cost-sharing at the lower end of the spectrum. So, the majority of beneficiaries actually likely saw their out-of-pocket costs increase this year, and we expect that trend to continue next year.”

The research noted that about 5% of Part D enrollees who do not receive low-income subsidies would reach a $2,000 OOP cap.

Hospital impact

Although Part D falls outside of hospital spending, many Medicare patients facing large OOP cost increases could cut their available funds to cover Part A and B OOP costs and add to hospital uncompensated care challenges.

“Higher out-of-pocket costs can translate to lower adherence and worse health outcomes,” said Trish. “Ultimately, it can also raise spending overall as patients end up in the hospital or needing other care that often could have been avoided.”

Since 2022, hospital and health system uncompensated care has grown faster than revenue, according to data from Strata Decision Technology. Specifically, from 2022 to 2024, full-year charity deductions for large hospitals (more than 200 beds) increased 31% and bad debt increased 18%. 

Other research indicates Medicare patients are cutting back on paying their OOP share for services. Recent research found the mean repayment rate for MA patients’ OOP costs decreased from 55% in pre-pandemic years to 46% by 2023.

From 2018 to 2024, the mean share of total MA payment lost by those unpaid OOP bills included:

• 2.6% of payment for inpatient episodes
• 4.3% of payments for outpatient episodes