Does it seem like the Medicare market is seeing a higher-than-average level of disruption right now? Some of the changes happening now are the result of the Inflation Reduction Act, a 2022 law that including many provisions impacting Medicare. Here’s a look at the good, the bad, and the ugly of the Inflation Reduction Act’s effect on Medicare.
What Is the Inflation Reduction Act?
The Inflation Reduction Act of 2022 is a large piece of legislation with a wide range of provisions impacting both energy policies and changes to counter inflation. For Medicare enrollees, the provisions affecting Medicare plan design are especially relevant.
Among other changes, the Inflation Reduction Act allowed Medicare to negotiate drug prices, and it has eliminated the Medicare prescription drug coverage “donut hole.” In the past, Medicare enrollees with high prescription drug costs entered a coverage gap – nicknamed the donut hole – in which they paid very high out-of-pocket costs. As of 2025, this coverage gap is closed.
The Good: Cost Savings for Medicare Enrollees
The good news is that the Inflation Reduction Act does what it set out to do by protecting Medicare enrollees from high drug costs.
Under the new plan design, there are three phases of coverage:
- Enrollees are responsible for 100% of gross covered prescription costs until they reach the annual deductible. For plan year 2026, the maximum deductible is $615.
- Initial Coverage. Enrollees pay coinsurance for covered Part D drugs.
- Once the enrollee reaches the out-of-pocket maximum for the coverage year, they are no longer responsible for their coinsurance, meaning they pay nothing to fill covered prescriptions. CMS says the Medicare prescription drug coverage out-of-pocket maximum is $2,100 in coverage year 2026, up from $2,000 in coverage year 2025. Once Medicare enrollees reach this out-of-pocket maximum, they will not have any more out-of-pocket costs for covered drugs for the remainder of the coverage year.
The Bad: Carrier Profits Under Threat
For the carriers providing Medicare prescription drug coverage, the situation looks a little different. Once enrollees meet the out-of-pocket maximum, there are no more out-of-pocket costs, but the prescriptions still cost money. CMS says plans will typically pay 60% of covered drug costs during the catastrophic coverage phase. Prescription drugs can be pricy, and seniors are often on multiple prescriptions. This could end up being very expensive for carriers.
The Ugly: Some Carriers Are Cutting Plans and Benefits
In response to increased costs and other financial pressures, some Medicare carriers are ending plans or cutting benefits.
Kiplinger says several major carriers have reduced their offerings in less profitable regions. According to KFF, there are 3,373 Medicare Advantage plans in the U.S. in plan year 2026, a 9% decrease compared to 2025. The average number of plan options available to an individual has decreased from 34 to 32.
But the cuts aren’t evenly distributed across the country. As Kiplinger stated, carriers are mostly cutting options in less profitable areas, meaning that people in these areas will be affected the most. According to Vermont Public, most counties in Vermont won’t have a single Medicare Advantage option in 2026. In Texas, Medicare Advantage options are actually increasing. CMS says there are 426 Medicare Advantage plans in the state, up from 381 in 2025.
This is good news for Medicare enrollees in Texas, but it doesn’t mean they will be completely spared. They may still see higher deductibles and fewer perks as carriers try to protect their profits.
The Bottom Line
There’s a lot going on in Medicare right now, and many of the changes – good and bad – stem from the Inflation Reduction Act. Your clients may be enjoying lower out-of-pocket costs, but they may also be hit with canceled plans and reduced perks. Be ready to answer questions, help clients navigate unfavorable plan changes, and maximizing their Medicare benefits in 2026.
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