The Hidden Penalty Already Hurting Medicare Patients

COMMENTARY

Millions of seniors are getting a nasty surprise this year, courtesy of the Inflation Reduction Act, former President Joe Biden’s signature legislative achievement: higher prices at the pharmacy for prescription drugs.

Biden pitched the law — which imposed price controls on prescription drugs and made many other changes to Medicare — as a way to slash seniors’ health care costs. But new research shows that, in 2025, seniors’ out-of-pocket drug costs are soaring because of the Biden “pill penalty.”

Fortunately, Congress is considering a bipartisan bill that would nix the IRA’s pill penalty and bring relief to seniors. 

The IRA gives Medicare officials the power to place price controls on a list of medications every year. However, the law doesn’t treat all medicines equally.

It specifies that Medicare should impose price controls on the most popular “biologic” drugs — which are cultivated from living cell lines and typically injected or administered intravenously — once they’ve been on the market for 13 years. 

By contrast, Medicare can impose price controls on small-molecule drugs — which typically come in pill form — once they’ve been on the market for nine years. 

The IRA requires the private insurers that sponsor Medicare Part D drug plans to cover every medicine selected for the law’s price control program. However, insurers have considerable latitude in how they cover those drugs. Insurers can make the medicines easily accessible to patients by setting low co-pays, thus encouraging uptake, or they can make the selected medicines difficult to access — by forcing patients to secure prior approval to fill their prescriptions and then pay high co-insurance costs, rather than flat low co-pays.

As a general rule, insurers make more money on non-price-controlled medicines compared to price-controlled ones. So for the first 10 drugs selected for the price control program, insurers have largely moved away from co-pays towards co-insurance, resulting in patients paying more out-of-pocket. Four of those selected drugs are medicines impacted by the pill penalty.

For some drugs on the list, the average out-of-pocket per prescription cost increases from 2024 to 2025 are staggering. For the nearly 1 million Medicare enrollees taking Farxiga for diabetes or kidney disease, out-of-pocket monthly costs are up 75.8% from last year. For the 1.8 million on the diabetes medication Jardiance, the increase is 69.7%.

Those figures almost make the 21.8% increase for the 664,000 taking the heart medication Entresto seem reasonable.

None of those three drugs would have been selected for price controls had the pill penalty not been in place. 

While many patients who take these drugs will be helped by the $2,000 annual limit on out-of-pocket costs, on their first trip to the pharmacy they will experience a massive hit to their wallet.

Unfortunately, the pill penalty’s most profound impact lies ahead.

Economists estimate that the pill penalty will result in 79 fewer new small-molecule medications developed over the next 20 years — because biotech companies have already started to shift their research away from small molecules and towards biologics. 

This retreat from pill development threatens decades of medical progress. Small-molecule drugs have revolutionized the treatment of depression, schizophrenia and neurodegenerative diseases. Their stability at room temperature and simple delivery method have made them accessible even in the most remote communities.

The shift in investment toward biologics will transform how millions manage chronic conditions.

Instead of monthly visits to the local pharmacy, patients will face regular trips to infusion centers — each visit bringing facility fees, professional service charges, and hours lost to travel and treatment. For rural families, this could mean lengthy journeys for routine care. For working parents, it could mean choosing between going to a child’s soccer game or attending to their own health needs. All of it increases health costs and makes coverage less affordable.

The human costs of this policy failure will only grow worse with time — unless Congress acts quickly. The bipartisan EPIC Act would eliminate the pill penalty by establishing a uniform 13-year exemption from price controls for both pills and biologics.

This fix would immediately remove the perverse incentive to abandon pill development and shift more costs to patients. 

Congress can fix the pill penalty by including the EPIC Act language in its upcoming budget bill. Doing so will quickly get medical innovation back on track.

Joel White is the president of the Council for Affordable Health Coverage, a nonprofit advocacy organization that seeks to lower the cost of health care for all Americans. He can be found here.