• Retirees covered by Medicare Part D are set to see new relief from high prescription drug costs in 2025.
• Annual out-of-pocket costs will be capped at $2,000 starting in January.
• New research from the AARP estimates how much retirees may save.

Retirees who are worried about the high costs of prescription drugs are set to get new relief starting in 2025.

Starting in January, Medicare drug plan enrollees will have their annual out-of-pocket drug costs capped at $2,000.

Between 2025 and 2029, on average, about 1.4 million participants in Medicare drug coverage (also known as Medicare Part D) who reach the new out-of-pocket cap will see an estimated annual savings of $1,000 or more, according to a new report from AARP.

More than 420,000 will see savings of more than $3,000 during that time.

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In 2025, average out-of-pocket spending will be roughly $1,100 for retirees who reach the out-of-pocket cap, down from about $2,600 without the changes, resulting in a 56% savings, according to AARP.

"That's money that can be used instead to buy groceries and pay bills," Nancy LeaMond, executive vice president and chief advocacy and engagement officer at AARP, said during a Wednesday presentation on the research.

The new limits on prescription drug spending are due to changes enacted by Congress in the 2022 Inflation Reduction Act. The legislation also gave Medicare the ability to negotiate certain prescription drug prices. Earlier this month, the Biden administration released the prices for the first 10 drugs that are part of those negotiations.

Prior to the Inflation Reduction Act, many Medicare Part D participants were required to pay 5% of their prescription drug costs with no limit for expensive medications, even after surpassing a certain spending threshold and entering into what's known as catastrophic coverage.

The burden of those high costs could lead to out-of-pocket expenses that could exceed $10,000 per year and prompted some retirees to avoid filling prescriptions or to skip doses, according to the AARP.

"This is about real people, parents, grandparents, friends, and neighbors who will finally see relief from high drug costs, and the fear that the price of their medications will spiral out of control," LeaMond said.

In 2024, the Inflation Reduction Act prompted the elimination of the 5% coinsurance for the catastrophic coverage phase of Part D. That resulted in an out-of-pocket cap of about $3,300 for brand-name prescriptions, according to KFF.

In 2025, a $2,000 cap on out-of-pocket Part D prescription spending will go into effect, and that limit will be adjusted annually.

That change set to take effect in 2025 will benefit an estimated 3.2 million individuals, or 8.4% of Medicare Part D enrollees, according to AARP. That is expected to increase to 4.1 million people, or 9.6% of Part D enrollees, by 2029. Almost 56 million beneficiaries currently have Medicare Part D coverage.

The 2022 law is already having a "significant impact" on Medicare beneficiaries, who don't pay more than $35 per month for insulin and have access to certain free vaccines due to the enacted changes, LeaMond said.