Millions of Americans struggle to afford their out-of-pocket health care costs and premiums. The Inflation Reduction Act (IRA), which is expected to be signed by President Biden into law this week, makes notable strides toward improving the affordability and accessibility of health care by addressing two acute areas of consumer need: extending premium subsidies in the Affordable Care Act’s (ACA) marketplaces and lowering prescription drug prices and out-of-pocket costs for Medicare beneficiaries.
Extending ACA Premium Subsidies
Last year, Congress passed the American Rescue Plan Act, which significantly increased premium subsidies in the ACA marketplaces, saving people who sign up for plans there thousands of dollars in annual premiums. While this move sent marketplace enrollment to historic highs, the subsidies were set to expire at the end of 2022. The IRA extends the subsidies for another three years, which will prevent an estimated 2 million people from losing coverage and help millions of others avoid premium increases as they grapple with rising prices elsewhere. Although the Congressional Budget Office has not yet released a final score on the bill, the federal budget cost is about $25 billion per year.
Increasing Access to Prescription Drugs
Through the IRA, Congress sought to make prescription drugs more affordable through reforms that will reduce the price of drugs and limit out-of-pocket costs for many Medicare patients. Currently, prescription drugs account for about 20 percent of Medicare patients’ out-of-pocket health care costs. Spending on prescription drugs continues to grow as other health spending has decreased.
The federal government was prohibited from directly negotiating drug prices in Medicare Part D, the prescription drug coverage program created in 2003. The IRA allows the government, under Medicare Parts B and D, to negotiate prices for 10 drugs with no generic or biosimilar competition starting in 2026, increasing to 20 drugs by 2029. In addition to lowering drug prices, Medicare negotiations are projected to reduce government spending by approximately $100 billion over 10 years.
The law also institutes inflation caps in Medicare Part D that limit price increases for drugs year over year. They are a response to drug price increases that far exceed inflation. Tax penalties would be levied on drugmakers that increase the prices of their products more than the rate of inflation. The caps are expected to reduce price growth over time.
While these provisions have the potential to help patients who take these specific drugs by lowering their out-of-pocket costs, the 48 million Medicare beneficiaries who get their drug coverage through Medicare Part D may see benefits as well if the lower drug prices translate into reduced Part D premiums.
The IRA also includes several other provisions that directly reduce some Medicare beneficiaries’ out-of-pocket costs. Most notably, it institutes a $2,000 annual cap for beneficiaries’ Part D spending (which currently has no cap), starting in 2025. Once this limit is reached, patients would have no cost-sharing requirement. Along with the annual limit, there is a monthly cap meant to smooth patient costs throughout the year. These provisions will help the 1.4 million Medicare patients who spend more than $2,000 on medications each year, including people who need high-cost cancer drugs.
People with incomes between 135 percent and 150 percent of the federal poverty level ($18,347 to $20,385 for a single person) will receive more assistance with premiums, deductibles, and cost-sharing, starting in 2024. This will reduce costs for an estimated 400,000 disproportionately Black and Hispanic beneficiaries.
The IRA also makes specific treatments more accessible to patients — for instance, by limiting cost-sharing for insulin products in Medicare Part D to $35 per month. The law also eliminates cost-sharing for adult vaccines under Medicare Part D and under Medicaid, where coverage of vaccines for adults was optional, with about half of states providing coverage and some charging cost-sharing.
Lastly, it includes a cap in Part D premium cost growth at 6 percent from 2024 to 2029 to prevent large premium increases in the future.
Looking Forward
This historic bill greatly reduces the cost of health care for millions of Americans who buy coverage on their own and for many Medicare beneficiaries. It will enable people to get and keep affordable coverage in the ACA marketplaces, where the cost of premiums is the most oft-cited reason people don’t enroll or drop coverage. The progress on prescription drugs is a milestone achievement toward making prescription drugs more affordable for Medicare patients and could pave the way for future reforms.