The passage of the Inflation Reduction Act (IRA) on August 12 affects the healthcare of millions of Americans. Provisions will change how certain drug prices get determined, limit out-of-pocket costs for older Americans, and could help ensure continued coverage for Medicaid beneficiaries when the COVID-19 Public Health Emergency ends.
Several provisions of the bill affect Medicare, but beneficiaries who take expensive prescription drugs are likely to feel the biggest impacts. Adults who depend on the American Rescue Plan's expanded subsidies to afford individual coverage will also experience significant benefits. The bill doesn’t expand eligibility for subsidized individual coverage, so adults who don’t already qualify for reduced-price plans through state or federal marketplaces won’t be affected.
Still, for many Americans, the IRA could meaningfully improve their ability to afford the care they need. "Half of people report difficulty paying for their healthcare or having to make difficult decisions about paying for basic necessities versus prescription drugs or co-payments. That's where this bill makes some incremental advances that are potentially quite important," said Dr. Atul Grover, Executive Director of the Research and Action Institute at the Association of American Medical Colleges.
Here's a breakdown of what the bill does for Medicare beneficiaries, adults who purchase private insurance coverage, and Medicaid enrollees.
For Medicare Beneficiaries
If you have high out-of-pocket prescription drug costs, you could end up paying less out of pocket. The IRA caps out-of-pocket spending on prescription drugs at $2,000 for all Medicare beneficiaries, regardless of income, starting in 2025. This “will probably be one of the more impactful” provisions of the bill, according to Juliette Cubanski, Deputy Director of the Program at Medicare Policy at KFF, a nonpartisan source of health policy analysis. In 2020, 1.4 million Medicare beneficiaries racked up more than $2,000 in out-of-pocket prescription drug spending, according to a KFF report. “Not having an out-of-pocket spending cap potentially exposes people to thousands of dollars in prescription drug costs, especially if they need really high cost medications or have a lot of conditions that require prescription drugs to maintain health,” Cubanski added.
However, with more patients able to afford prescriptions and covering less of the cost, insurers could raise monthly insurance premiums to make up the difference. “Ratcheting that down to a $2,000 maximum provides a lot of help. But it's going to mean higher premiums for Medicare Part D plans,” said Dr. Alan Sager, a Professor at Boston University School of Public Health’s Department of Health Law, Policy & Management.
If you take prescription drugs covered under Medicare Part D, you could experience savings on prescriptions. Starting in 2026, the federal government will be able to negotiate directly with drugmakers on prices for some prescription drugs covered under Medicare Part D that lack comparable or generic alternatives. The first 10 drugs will be announced in 2023, followed by 15 more drugs in both 2027 and 2028, and 20 more drugs in both 2029 and 2030. Because the drugs haven’t been announced yet, it’s difficult to say “with any level of precision” how many and which categories of patients could benefit from the negotiated prices, according to Cubanski. But negotiated pricing will likely apply to drugs taken by many beneficiaries or that account for significant Medicare spending, such as cancer, rheumatoid arthritis, and diabetes drugs, according to Cubanski.
Starting in 2028, the government will be able to negotiate prices on Part B drugs, which are typically administered by physicians at a doctor's office or hospital outpatient facility, rather than picked up at a retail pharmacy. Chemotherapy drugs are one example.
If you take any prescription drugs, you could see more stable out-of-pocket prescription drug costs starting in 2024, when a new regulation will interfere with drugmakers’ ability to ramp up prices each year. Under the provision, drugmakers that raise prices faster than inflation will have to pay a rebate to Medicare. Drug price increases do translate into higher out-of-pocket spending for patients, so the rebate is intended to help prevent both of those things from happening. But the bill doesn’t regulate how drug manufacturers set prices for new drugs, which means “manufacturers still have the ability to launch drugs at whatever price they want,” Cubanski said.
If you take insulin, your monthly costs could be capped at $35. Compared to some other countries, patients in the U.S. are "paying 10 or 12 times as much" for insulin, according to Grover. The IRA addresses this with a $35 cap on monthly out-of-pocket insulin costs for all Medicare beneficiaries, starting in 2023. An analysis by KFF found that most Medicare beneficiaries are spending more than $35 on average per prescription.
However, “an important caveat” is that plans won’t be required to cover all insulin products, so some Medicare beneficiaries could end up paying more than $35 per month, according to Cubanski.
If you need vaccinations, your vaccines will be free. Some vaccines, including pneumonia and the flu, are already free under Medicare, but many are not. That will change in 2023, when all vaccinations covered under Medicare Part B will be available at no cost. "This provision will help millions of beneficiaries each year,” Cubanski said. “A lot of these vaccines aren't super expensive, but when we're talking about a population that lives on relatively modest income, even a modest out of pocket expense could be burdensome.” The shingles vaccine, for example, is recommended for everyone over age 50, but can cost $50 or more and requires two doses.
If you receive partial financial assistance for Part D coverage, your prescription co-payments will be lower. Currently, low-income Medicare beneficiaries who receive partial financial assistance for Part D coverage typically pay 15 percent coinsurance on prescriptions. But an IRA provision will reduce those copayments to “very modest” flat-dollar copayments of about $1 to $3 for generic drugs and no more than $10 for brand-name drugs, according to Cubanski.
For Adults Who Purchase Individual Coverage Through the Affordable Care Act
If you were eligible for expanded subsidies created by the American Rescue Plan, you could continue to qualify for those subsidies. The American Rescue Plan of March 2021 expanded subsidies created through the Affordable Care Act (ACA) for people who buy health insurance through state and federal marketplaces. The larger subsidies reduced monthly premiums for nearly 90 percent of enrollees, leading to a record 14.5 million people signing up for coverage during the 2022 Open Enrollment Period. With the IRA, those expanded subsidies have been extended for another three years.
According to Sager, the extension will be "vital to prevent returning to the ACA levels of subsidies, which were not big enough to enable many people to afford coverage.” Without the extension, approximately three million people could have lost their ability to afford insurance, and more than 10 million people would have seen their tax credits reduced or lost entirely.
For Medicaid Beneficiaries
You may qualify for a subsidized plan when the Public Health Emergency ends. Under the ongoing COVID-19 Public Health Emergency (in effect since January 31, 2020), states receiving extra Medicaid funding from the federal government are banned from disenrolling people from Medicaid coverage. This strategy has "been effective over the past two years" in keeping people insured, according to Grover. But when the Emergency ends, about 15 million Medicaid enrollees could lose coverage, including two million adults in states that have not expanded Medicaid access to include people in the 100-to-138 percent of poverty range. The IRA’s extension of expanded subsidies for plans available through state and federal marketplaces could help keep them insured through similarly low-cost plans.