On Jan. 1, 2026, a new era of Medicare drug pricing will begin, but at the same time, millions could face higher premiums and uncertain Medicaid coverage.
Medicare Drug Negotiations Begin
That change stems from the Inflation Reduction Act signed by President Joe Biden in 2022, which for the first time granted Medicare the power to negotiate prices on some of its most expensive prescription drugs.
10 Costliest Drugs and Savings
Starting on that date, the negotiated prices will cover the 10 costliest drugs in the program-blood thinners Eliquis and Xarelto, diabetes drugs Jardiance and Januvia, among others-used by nearly 9 million older adults.
Out-of-Pocket Savings
AARP estimates that out-of-pocket costs for those drugs will fall by more than 50% on average, with seven of them dropping below $100 per month, while the Centers for Medicare & Medicaid Services projects enrollees will save $1.5 billion in out-of-pocket spending next year.
IRA Caps on Spending
The Inflation Reduction Act also capped annual out-of-pocket prescription drug spending for Medicare enrollees at $2,000 this year, a limit that will rise to $2,100 in 2026; in 2023, out-of-pocket insulin costs were capped at $35 a month.
Senior Voices
Leigh Purvis, the prescription drug policy principal at the AARP Public Policy Institute, said on a recent call with reporters, “The IRA is truly a historic win for millions of seniors.”
Real-World Impact
Tom Howie of Flint, Michigan, an 81-year-old with a long history of heart disease, said the changes have already had a big impact. “It’s a big difference,” he said. “I just get my Social Security, basically, and then I have some money from my 401(k).” He spent as much as $8,000 out of pocket on prescriptions before reaching Medicare’s catastrophic threshold, typically mid-summer; this year he hit the $2,000 cap by May and now pays about $121 for a three-month supply of Eliquis, hoping the copay will fall further in 2026.
Drawbacks of the IRA
Yet the IRA has drawbacks. Richard Frank, a senior fellow in economic studies and director of the center on health policy at Brookings, said, “One provision in the law penalizes companies for raising prices too sharply from year to year.” As a result, he noted, drugmakers are increasingly setting prices higher from the outset.
Rising Launch Prices
A report from the Institute for Clinical and Economic Review in October found that the average net launch price for 154 new drugs increased 51% over three years, 2022 to 2024, after accounting for inflation and discounts. The list included Leqembi, used to treat early Alzheimer’s disease, and Casgevy, a gene therapy for sickle cell disease. Frank added, “I don’t see any reason to believe that’s not going to at least continue for a bit, until people figure out some sort of policy moves to address that.”
Uncertainty for Obamacare and Medicaid
Meanwhile, moves by the Trump administration and Republican lawmakers have introduced uncertainty for Obamacare and Medicaid. Enhanced ACA subsidies that helped keep premiums affordable are expiring after Republicans in Congress declined to extend them. Some people could pay up to 114% more, on average, in premiums when combined with rate increases by insurers next year, according to a KFF analysis. Early enrollment data shows more people walking away from ACA coverage or switching to cheaper plans for 2026 compared to last year.
Medicaid Funding Cuts
Changes to Medicaid funding approved under Trump’s “One Big Beautiful Bill,” including the end of a financial incentive for states to expand Medicaid, will take effect in January. In the 10 states that haven’t expanded Medicaid, low-income adults will remain in a coverage gap, Levitt said. More sweeping Medicaid changes, such as work requirements, are scheduled to go into effect in 2027. Stacie Dusetzina, a health policy professor at Vanderbilt University, warned, “That’s going to be one of the biggest changes we’re going to see. More and more people won’t have any access to care, and that will theoretically lead to more uncompensated care for hospitals and doctors and more medical debt for people if they actually need to go and get care.”
Trump’s Pharmaceutical Deals
Trump’s pharmaceutical strategy has also aimed to lower drug costs outside Medicare. In May, he signed an executive order directing federal officials to implement a “most favored nation” pricing model. Since then, he has struck deals with 14 pharmaceutical companies, offering lower prices through direct-to-consumer offers and reduced federal payments in exchange for tariff relief. TrumpRx.gov will connect consumers to drugmakers’ direct-pay websites. In November, the president reached a large deal with Novo Nordisk and Eli Lilly, makers of Wegovy and Zepbound, to lower the cost of GLP-1 medications for people paying out of pocket and to reduce Medicare and Medicaid prices, saving the federal government and taxpayers money. Levitt expressed concerns, saying, “President Trump has been using the threat of tariffs as leverage with drug companies. If that threat goes away in the future, there won’t be anything holding drug companies back from raising prices again.”
Mixed Outlook
Dusetzina added, “They’re lower prices for people paying cash, but still not low prices. That’s really key. If you can’t afford to keep your health insurance because you’ve lost access to health insurance subsidies, then it seems unlikely that you would have the resources to pay out of pocket for drugs through TrumpRx.” Levitt also noted that there may still be hope for Americans on ACA plans if Congress reaches a deal to extend subsidies next year. Republicans held firm against Democrats’ efforts to extend subsidies by the end of the year, but not before a key group of House Republicans broke ranks with Speaker Mike Johnson and teamed up with Democrats to force a vote sometime next year. “They could be retroactive to Jan. 1,” Levitt said, “and there could be a new enrollment period to allow people to sign up.”
Key Takeaways
- Medicare’s negotiated drug prices will start in 2026, offering seniors significant savings.
- ACA subsidies are set to expire, potentially increasing premiums by up to 114% and widening the Medicaid coverage gap.
- Trump’s voluntary drug-price deals may lower out-of-pocket costs for cash-paying consumers, but uncertainties remain if subsidies disappear.
The coming years will test whether the savings promised by Medicare’s new drug-price negotiations can offset the rising costs many Americans face under the shrinking safety net of the ACA and Medicaid.
