Medicare's new $2,000 prescription drug cap goes into effect Jan. 1. Here's how it works.

Starting Jan. 1, millions of Americans who get their prescription drugs through Medicare could get a major financial break when a $2,000 out-of-pocket spending cap on medications goes into effect. 

The yearly price cap has been in the works since President Joe Biden signed the Inflation Reduction Act into law in 2022, with that legislation including provisions tackling drug costs for seniors as well as other Americans. While some of those other rules have already kicked in, such as a $35 price cap on insulin for seniors, Medicare's $2,000 drug cap will become effective starting next month. 

The out-of-pocket cost cap could be a "game changer" for many seniors, Ryan Ramsey, the associate director of health coverage and benefits at the National Council on Aging (NCOA) told CBS MoneyWatch. In the first year of the cap, about 3.2 million Medicare recipients are likely to see lower costs due to the new rule, particularly seniors who take multiple medications or have high-cost prescriptions, according to an analysis from AARP.