President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022. Although it might not be immediately clear from the name, the law will have a significant impact on health care in our country. The two most prominent health policy issues tackled by the Inflation Reduction Act included efforts to (1) reduce prescription drug costs and (2) lower the costs that Americans pay for health care coverage. Let’s visit each area in brief.
Reducing Prescription Drug Costs
First, to help reduce prescription drug costs, the legislation sets a cap on annual out-of-pocket costs for Americans with Medicare Part D at $2,000 per year. According to Kaiser Family Foundation (KFF), it’s estimated to help 1.4 million Medicare Part D enrollees who had annual out-of-pocket drug spending of $2,000 or more in 2020. This change is particularly significant for individuals receiving high-cost drugs for conditions such as cancer or multiple sclerosis and will be implemented by 2025 creating greater predictability for seniors’ spending on prescription drugs.
Second, the law will help address insulin prices for seniors covered by Medicare by capping costs for insulin at no more than $35 for a month’s supply. Among Medicare Part D insulin users, the average out-of-pocket cost per prescription across all insulin products was $54 in 2020, which has risen by 39 percent since 2007, and spending on some insulin products is much higher than the average, making insulin unaffordable for many.
Unfortunately, this change will not provide similar relief for the uninsured or people with private insurance coverage who also have significant challenges affording insulin. However, it’s a promising sign to see progress toward reducing costs for insulin, which is an essential drug that patients cannot live without.
For the first time in the history of Medicare, the federal government will have the authority to negotiate prices for some of the highest-spending drugs covered under Medicare. This is a change from current law, which explicitly prohibited the government from doing this under Medicare.
The authority will reside with the secretary of Health and Human Services (HHS), and although the negotiated prices won’t take effect until 2026, we should start to see details of how HHS plans to implement this provision in the next year as the law requires a series of steps to take place in the lead-up to implementation. The Congressional Budget Office estimates that this provision will save just over $100 billion between 2026 and 2031.
Under the law, drug companies will also be required to pay rebates if prices rise faster than inflation for drugs used by Medicare beneficiaries. Based on some recent analysis by KFF of CMS drug spending data, price increases outpaced inflation for half of all drugs covered by Medicare in 2020, so this provision will also help make sure prescription drug pricing doesn’t continue to outpace general inflation in the economy and should begin in 2023.
Lowering Costs for Health Coverage
The second policy area focuses on lowering costs to obtain health care coverage. To understand this provision, it’s helpful to revisit some of the changes brought by the Affordable Care Act in 2010, which created health insurance marketplaces. These marketplaces provided an opportunity for consumers to shop for plans and find assistance with obtaining health coverage if coverage wasn’t available through an employer or other government programs such as Medicaid. The assistance included subsidies that lowered costs for households with certain income levels to reduce premiums and make health insurance more affordable.
In 2021, the American Rescue Plan Act (ARPA), which was focused on providing relief to address the continued impact of COVID-19, included a provision that increased the amount of financial assistance for people who were eligible and removed the upper limit income on subsidies lowering health care costs for most marketplace consumers. The Centers for Medicare and Medicaid Services reported that this change lowered average monthly premiums by 23 percent compared to the previous year and prompted a record-breaking 14.5 million people to sign up for health coverage through the marketplace. Moreover, the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) released data that showed the national uninsured rate reached an all-time low in early 2022, in large part due to this extra assistance.
However, the funding made available for ARPA was only guaranteed for 2021 and 2022. Without additional legislative action, people would have lost access to the subsidy support that helped keep the cost of plans low. As part of the Inflation Reduction Act, these enhanced subsidies were extended an additional three years (through 2025) so they will continue without interruption, helping Americans save on health insurance purchased through marketplaces, and it will help us build on efforts to further reduce the rate of uninsured in the U.S.
Next Steps
These changes should get many of us who care about the cost of health care excited. It will also undoubtedly create interest among our students and our community, particularly as provisions begin to be implemented over the next few years.
If you have an interest in building expertise in this area or know someone who does, I hope you’ll consider our graduate programs offered by the Department of Public Health at Des Moines University. Our Master of Health Care Administration and Master of Public Health programs are designed to build expertise across these topics, and both are available entirely online. They offer an incredible opportunity to pursue your interests as you continue a rewarding and impactful career in health care. Please reach out if you’d like to learn more!
