The Inflation Reduction Act 2022

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President Joe Biden this month signed legislation designed to lower prescription drug costs for Medicare recipients.

For Medicare enrollees, the Inflation Reduction Act will phase in a cap of $2,000 a year on out-of-pocket drug prices, will limit insulin cost-sharing next year to $35 a month, and will allow Medicare to start negotiating how much it pays for certain drugs.

Here is what you need to know about how the legislation will impact healthcare services and the cost you pay for them.

Medicare medications might be cheaper

If you are on Medicare and spend money on expensive prescription drugs, the new law might save you money.

The act gives the secretary of the U.S. Department of Health and Human Services the task of negotiating with drug manufacturers over the price of certain prescriptions covered under Medicare, the nation’s health insurance system for seniors and some other Americans.

Beginning in 2023, the Department of Health and Human Services will pinpoint Medicare’s 100 most expensive drugs and choose 10 of these medications for price negotiations.

Newly negotiated prices will begin in 2026.

An additional 10 drugs will be added to the negotiation list over the next two years, with those savings beginning by 2028.

These negotiations should result in lower prices for some of the most expensive prescription medications and are estimated to save the government and taxpayers a total of $100 billion on the cost of prescription drugs over 10 years.

Deb Gordon, co-director of the Alliance of Professional Health Advocates, says this aspect of the Inflation Reduction Act is “an important first step” toward lowering prescription drug costs for consumers.

However, she adds that expectations should be modest – at least initially.

“It is pretty limited, only allowing Medicare to negotiate the cost of 10 older high-cost drugs initially, and only for Medicare beneficiaries, not the broader population,” she says.

Drug manufacturers may have to pay rebates

The act also stipulates that prescription drug manufacturers will be required to pay rebates back to Medicare whenever the cost of a drug exceeds the rise in inflation for those covered under Medicare.

This provision will kick in next year and is expected to save the government $101 billion overall.

Out-of-pocket spending for prescription drugs on Part D will be capped

Those who sign up for Medicare Part D — which covers the cost of prescription drugs — will only be responsible for $2,000 in out-of-pocket spending on medications in a given year. This provision begins in 2025.

An analysis by the Kaiser Family Foundation found that 1.5 million Medicare beneficiaries paid more than $2,000 each in prescription drug costs in 2019.

Beginning in 2024 — the year before the $2,000 limit goes into effect — Medicare beneficiaries who spend $7,050 on prescription drugs during the course of a year will not have to spend any additional money during that year.

Other savings related to Medicare

The Inflation Reduction Act comprises other changes to Medicare, including the following:

Limits on the rise of annual premiums

The rise in the cost of annual premiums for Medicare Part D will be limited to 6% from 2024 to 2029.

Those who are on Medicare and use insulin will have their cost-sharing limited to $35 per month. Until now, there has been no cap on cost-sharing.

“In our experience, most of our patients with diabetes have more than one condition, which means that they’re paying for both their diabetes costs along with medications for any other diagnosis,” says Caitlin Donovan, a spokesperson for the National Patient Advocate Foundation. “This will be a big help for them.”

In addition, there will be no cost-sharing for vaccines covered as a part of Medicare Part D.

“If we’ve learned anything from the pandemic, it’s how critical vaccines are to public health,” Donovan says. “We want to eliminate any type of barrier between people and access to vaccines.”

Expanded Part D low-income subsidies

About a half-million beneficiaries who earn between 135% and 150% of the federal poverty level will be eligible for Medicare Part D low-income subsidies. Using 2022 numbers, that amounts to about $18,347 to $20,385 for each person.

In total, these changes will save the federal government an estimated $250 billion during the next decade while also lowering premium and cost-sharing expenses for those who receive Medicare, according to the Center on Budget and Policy Priorities.

ACA marketplace subsidies will continue

If you purchase health insurance through one of the marketplace exchanges, you’ll likely continue to qualify for a rebate on your premium costs, thanks in part to the new legislation.

For the next three years, the Inflation Reduction Act extends more generous subsidies that help people pay for health insurance. These enhanced subsidies were originally passed as part of legislation tied to the COVID-19 pandemic.

“These subsidies are a lifeline for access to insurance,” says Randall Rutta, chief executive officer of the National Health Council.

Originally, those enhanced subsidies were slated to expire this year. However, the act renews the enhanced subsidies through 2025.

Rutta notes that the subsidies have been a major contributor to the record-low rate of uninsured Americans and that they have improved the health of millions.

Had the enhanced subsidies not been extended, around 13 million people would have seen their health insurance premiums increase by an average of more than 50%, according to an analysis by the Kaiser Family Foundation.

As it stands now, people with incomes of up to 400% of the federal poverty level are eligible for premium subsidies. The lower your income, the more generous the subsidy.

“We encourage people who are looking for insurance on the ACA marketplaces to look to see how much assistance they can receive,” Rutta says. “Some people can have their premiums completely covered by the subsidies.”

Gordon also lauds the decision to extend subsidies, saying the move helped avert a crisis for millions of Americans.

“Had the subsidies expired, I predict we would have seen a significant uptick in the number of uninsured Americans, which is terrible for those individuals who are left exposed to catastrophic healthcare costs,” she says.

The cost of the extensions to the government – and ultimately, the taxpayers who fund the government – is $64 billion.

Final thoughts: The Inflation Reduction Act

While Rutta believes passage of the Inflation Reduction Act marks an important step forward, he says more work remains to be done in providing affordable health care access to all Americans.

“We had hoped to see this bill make further investments in the health care system, notably in helping people get insurance in states that have not expanded Medicaid,” he says. “We are hopeful Congress will continue to focus on this longstanding challenge.”

Gordon says she hopes the extension of health insurance subsidies will help more people understand that they can “afford robust, comprehensive coverage they may have thought was unattainable.”

She also is optimistic that the Medicare drug measures will help advance the effort to increase the affordability of prescription medications for all Americans.

“I do think that the Congress’ willingness to take action sends a message to the pharmaceutical industry that prices can’t keep going up and up as they have over recent years,” she says.

Sources:

Center on Budget and Policy Priorities.“Inflation Reduction Act Will Reduce Medicare Drug Costs, Not Cut Benefits.” Accessed August 2022.

HealthCare.gov. “Subsidized coverage.” Accessed August 2022.

Kaiser Health News (KHN).“Inflation Reduction Act Contains Important Cost-Saving Changes for Many Patients — Maybe for You.” Accessed August 2022.

Chris Kissell

Contributing Researcher

Chris Kissell is a Denver-based writer and editor with work featured on U.S. News & World Report, MSN Money, Fox Business, Forbes, Yahoo Finance, Money Talks News and more.