Over the past few years, a wave of federal and state reforms has reshaped how Americans pay for prescription drugs. The most significant changes come from the Inflation Reduction Act of 2022, which introduced Medicare drug price negotiation, capped insulin costs, and set a hard limit on annual out-of-pocket spending for Medicare beneficiaries. But the reforms extend well beyond that single law, touching pharmacy middlemen, generic drug approvals, state-level price reviews, and more.
Medicare Can Now Negotiate Drug Prices
For the first time in the program’s history, Medicare has the authority to directly negotiate prices with pharmaceutical manufacturers. The first round of negotiations targeted 10 of the most widely used and expensive drugs covered under Medicare Part D. Those drugs are Eliquis, Xarelto, Januvia, Jardiance, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and NovoLog/Fiasp. The negotiated prices take effect on January 1, 2026.
These aren’t obscure specialty medications. They treat some of the most common conditions among older adults: blood clots, diabetes, heart failure, arthritis, and certain cancers. The program will expand in future years, adding more drugs to the negotiation list. For the millions of Medicare enrollees who take one or more of these medications, the savings could be substantial once the new prices kick in.
The $35 Insulin Cap
Starting January 1, 2023, Medicare enrollees began paying no more than $35 for a month’s supply of each covered insulin product dispensed at a pharmacy or through mail order. As of July 1, 2023, that same $35 monthly cap extended to people with Medicare Part B and Medicare Advantage who get insulin for use with a traditional pump. The cap applies per insulin product, so someone using two different types of insulin would pay a maximum of $70 per month total.
This was one of the fastest-acting provisions of the Inflation Reduction Act. Before the cap, some Medicare beneficiaries were paying hundreds of dollars a month for insulin. Several major insulin manufacturers subsequently announced voluntary $35 caps for their commercial (non-Medicare) customers as well, broadening the impact beyond the Medicare population.
A $2,000 Cap on Medicare Drug Spending
Starting in 2025, Medicare Part D beneficiaries have a hard annual out-of-pocket spending cap of $2,000. Before this change, there was no true ceiling on what Medicare enrollees could spend on prescriptions in a given year. People taking expensive specialty drugs for cancer, autoimmune conditions, or rare diseases could face costs of $10,000 or more annually, even with insurance.
The redesigned Part D benefit structure means that once you hit $2,000 in out-of-pocket costs for the year, you pay nothing more for covered prescriptions for the rest of that calendar year. This single reform is expected to provide meaningful financial relief for roughly 1.5 million Medicare beneficiaries who previously blew past that threshold every year.
Penalties for Drug Companies That Raise Prices Too Fast
Drug manufacturers that increase prices on Medicare Part B drugs faster than the rate of inflation now owe rebates back to Medicare. This provision creates a financial disincentive for the kind of aggressive annual price hikes that had become routine in the pharmaceutical industry. In 2024, 73 medications triggered these inflation-based rebates. The total rebates owed to Medicare jumped from more than $14 million in 2023 to more than $121 million in 2024, a sharp increase that reflects both wider enforcement and the cumulative effect of above-inflation price increases.
For patients, the practical impact shows up as lower coinsurance. When a drug’s price is subject to an inflation rebate, Medicare calculates your cost-sharing based on the lower, inflation-adjusted price rather than the manufacturer’s actual list price.
Expanded Help for Lower-Income Medicare Enrollees
The “Extra Help” program, which subsidizes prescription drug costs for Medicare beneficiaries with limited income, was expanded in 2024. To qualify, your annual income must be below $22,590 as an individual or $30,660 as a married couple. Resource limits are $17,220 for individuals and $34,360 for couples. Resources include bank accounts, retirement savings, stocks, and bonds, but not your home, one car, burial plots, or household items.
Previously, there was a partial subsidy tier that left some enrollees with meaningful cost-sharing. The expansion simplified the program so that everyone who qualifies receives the full subsidy, eliminating premiums, deductibles, and most copays for covered drugs.
Cracking Down on Pharmacy Middlemen
Pharmacy Benefit Managers, the companies that negotiate drug prices between manufacturers, insurers, and pharmacies, have faced increasing scrutiny. In February 2026, Congress passed legislation that fundamentally changes how PBMs operating in Medicare Part D are compensated. The law delinks PBM pay from the price of a drug or rebate arrangements, removing the financial incentive for PBMs to favor higher-priced medications. It also requires PBMs to pass through 100 percent of manufacturer rebates to employer health plans, rather than keeping a portion for themselves.
At the state level, all 50 states have pursued some form of PBM-related legislation. Many have prohibited “spread pricing,” a practice where PBMs charge insurers more for a drug than they pay the pharmacy, pocketing the difference. The Trump administration also proposed a rule requiring greater transparency from PBMs about their compensation in contracts with self-insured employer health plans.
State Prescription Drug Affordability Boards
Eleven states have established Prescription Drug Affordability Boards, independent bodies that review drug pricing and can flag products as unaffordable. As of March 2025, those states are Colorado, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Ohio, Oregon, and Washington.
Four of those states (Colorado, Maryland, Minnesota, and Washington) have gone further, granting their boards authority to set upper payment limits, essentially price caps, on drugs deemed unaffordable. Washington can set limits on up to 12 drugs, while Colorado and Minnesota face no cap on the number of drugs they can review. In practice, however, no state had actually finalized an upper payment limit as of early 2025. Colorado’s board identified three medications as unaffordable, but legal challenges from manufacturers stalled the process. These boards represent a significant shift in state-level power over drug pricing, even if their real-world impact is still materializing.
Faster Paths for Generic and Biosimilar Drugs
Competition from lower-cost alternatives remains one of the most effective ways to bring drug prices down. The FDA has taken steps to reduce barriers for biosimilars, the generic equivalents of complex biologic drugs used to treat conditions like rheumatoid arthritis, cancer, and Crohn’s disease. New draft guidance simplifies the approval pathway by eliminating the default requirement for comparative clinical trials, which previously took one to three years and cost an average of $24 million per product. The agency determined that these trials added little beyond what analytical lab testing could demonstrate.
The FDA also dropped its general recommendation for “switching studies,” which required biosimilar developers to prove patients could safely switch from the brand-name biologic. These studies slowed development timelines and created unnecessary confusion about biosimilar safety. Removing both requirements is expected to lower the cost and time needed to bring biosimilars to market, which should translate into more competition and lower prices for some of the most expensive drugs on the market.
Drug Importation From Canada
The FDA has established a formal pathway for states and Indian tribes to import certain prescription drugs from Canada, where prices are often significantly lower. The goal is straightforward: reduce costs for American consumers without introducing safety risks. States can submit importation program proposals to the FDA for review and authorization. Florida was among the first to pursue this route, though implementation has been slow. The program requires that imported drugs meet the same safety and quality standards as domestically distributed medications, which adds logistical complexity. As of early 2026, the FDA continues to work with states developing proposals, but large-scale importation has not yet become a reality.