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What the Inflation Reduction Act Really Means for Health Care

Illustration of medicine and dollar signs being crushed by a signed bill

Illustration by Rose Wong

Illustration by Rose Wong

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  • On the latest #TheDosePodcast, @DusetzinaS explains how the Inflation Reduction Act makes health care more affordable for Americans, particularly people on #Medicare who need expensive medicines

  • The Inflation Reduction Act (IRA) is being hailed as a breakthrough in health care. But what does this new law really mean for Americans — now, and in the future? Listen to this interview with Stacie Dusetzina to find out.

Among other things, the Inflation Reduction Act is being hailed as a potential breakthrough in making health care more affordable. But what does this landmark legislation, enacted last month, really mean for Americans — now and in the future?

To open the new season of The Dose podcast, host Shanoor Seervai interviews Stacie Dusetzina, an associate professor in health policy and cancer research at Vanderbilt University. Dusetzina breaks down the key health provisions of the new law, from drug price negotiation in Medicare to the redesign of Part D coverage.

We’ve “repeatedly been burned by the health care system . . . [so] we’re all suspicious when something sounds really too good to be true,” she says. “The changes here for people who have very expensive drugs are almost too good to be true.”

Transcript

SHANOOR SEERVAI: Listeners, welcome back to a brand-new season of The Dose. We’re kicking off with a real breakthrough in health policy. That’s what all headlines said this summer when President Biden signed the Inflation Reduction Act, which includes several provisions aimed at making health care more accessible to all Americans and closing gaps in Medicare.

I’m Shanoor Seervai, and on this episode of The Dose we’ll talk about just how significant this new legislation is when translated at the patient level and if advocates for strengthening health care really got what they wanted with this package. My guest, Dr. Stacie Dusetzina, is an associate professor in health policy as well as cancer research at Vanderbilt University. A widely cited expert in her field, Dr. Dusetzina’s work has contributed to the evidence base for the role drug costs play in patient access to care and policy changes to address this.

Dr. Dusetzina, welcome to the show.

STACIE DUSETZINA: Thank you so much for having me. I couldn’t be happier to be here.

SHANOOR SEERVAI: So the health care provisions in the IRA are being hailed as a breakthrough. Let’s qualify this. You’ve been working in this space for years. So is it really a breakthrough?

STACIE DUSETZINA: Absolutely. I think for Medicare beneficiaries, I would consider this a major breakthrough on policy and really for a couple of reasons. One is that it makes really substantial changes to the Medicare Part D benefit. That’s the benefit where people get their prescription drugs that they’re filling in pharmacies. It’s a substantial overhaul of that benefit that we haven’t seen since it was first introduced. And the other thing that I think is really a breakthrough is allowing for drug price negotiation in the benefit. As part of the original law, it was completely outlawed to negotiate for drug prices through the Medicare program. So this is a really big step forward.

SHANOOR SEERVAI: And who benefits the most?

STACIE DUSETZINA: Well, I think consumers are going to benefit a ton from these changes. The groups that I tend to study are people who are trying to fill very expensive drugs. And for those consumers, particularly anybody who’s spending over $2,000 per year out of pocket, they will all see direct financial benefits from this bill. But other people will see indirect benefits. Things like simplifying how much they have to pay whenever they go to the pharmacy to fill their drugs, or even just having the financial security of knowing that if you really need expensive drugs one day, that you can afford them.

SHANOOR SEERVAI: And what about the government, do they benefit?

STACIE DUSETZINA: Yes, absolutely. So there are lots of changes that are kind of going to be moving different parts of a little bit more government spending in some places and less in others. So for example, whenever we think about improving benefits for people, that means more spending. So when we think do things like adding a cap on how much people have to pay out of pocket, that has to come from somewhere.

Now, in addition to that change that improves the benefit and increases spending, there are many savings. So there are things like limiting the rate that drug companies can increase prices to the rate of inflation. The drug price negotiation will be savings for the Medicare program, but the Medicare redesign also shifts what the government pays and how much they pay in a way that currently is not advantageous to the government. So the government paying for 80 percent of drugs once spending gets very high, that’ll actually shift to be a much smaller percentage with the redesigned benefit. So lots and lots of changes that are happening, some that increase spending, some that decrease spending. But in all, I think the goal is to keep the program running the way it has been, benefiting a lot of people, but also improving it to make it better for consumers and better in the long run for all of us.

SHANOOR SEERVAI: And is this a win for working families? Because Medicare mostly covers people who are over 65.

STACIE DUSETZINA: That’s a great question. So the way I look at it is many of us have Medicare beneficiaries in our family and friend networks, even if we have not yet reached Medicare age and eligibility ourselves. So in a lot of ways, you can think about some of the worst-case scenarios today are that your family member needs to go on a very expensive drug and can’t afford to. So that actually is quite a financial burden, not just for that person, but for their family as well.

So I think there are some positive spillover effects onto people who are working. Another thing that I’ve heard over the years — I’ve talked with people who are not confident that they can retire because when they transition from employer sponsored benefits to the Medicare program, they know that if they need expensive drugs today, they might not be able to afford them under Medicare. So I think it kind of gives people additional confidence that they won’t have these huge financial penalties for going into Medicare. For example, receiving treatment for a condition like rheumatoid arthritis. Maybe your biologic medication that you need is costing you thousands of dollars per year. You might actually expect to spend even more than that in the Medicare program before the cap was in place.

SHANOOR SEERVAI: Right. Right. That’s a really interesting point.

STACIE DUSETZINA: Yeah. I think the other thing though, is the question about the broader effect on people who are outside of Medicare. And I think that that is one of the pieces where the legislation was just not able to go, partly because of the budget reconciliation process under which it was passed. Any changes that they had attempted to make to commercial payers ended up getting stripped out of the legislation during the reconciliation process. And so it doesn’t have a real direct effect on people with commercial health plans.

SHANOOR SEERVAI: I did want to ask, I mean, obviously your expertise is in Medicare Part D and drug development, but there is another key health care provision in the IRA. Can we touch briefly on the extension of the ACA premium subsidies?

STACIE DUSETZINA: The premium subsidies basically have made it much more affordable for people to get health insurance through exchange plans. And in fact, we’ve seen a lot more people enroll in those plans because for the first time now they can get really affordable coverage. And this was first available during the coronavirus pandemic as a way to make sure that people had access to some form of health insurance as we were seeing all of this disruption in employment.

Now these are a little bit tricky when we think about subsidies and extending those. So in a way, it’s that we aren’t taking away benefits that people have today. So these have been extended out for several more years. They weren’t made permanent, which I think is a little bit of a source of contention is that these are really helping people to afford their health insurance today, especially younger people who aren’t on the Medicare program, but at least having them for several more years and not having them go away in November is a better start than what we were facing without action.

SHANOOR SEERVAI: And how will plans be impacted by this new law?

STACIE DUSETZINA: For Medicare Part D plans, they’re going to need to start to pay a higher percentage of drug spending once spending goes up. So today, they have a small percentage that they owe in this reinsurance phase. So once someone has entered this . . . catastrophic level of spending is what Medicare calls it . . . plans have only a small responsibility for those drugs and the spending on those drugs today. So they’ll need to pay more.

They also have this really interesting smoothing mechanism that they have proposed. So the idea behind this is basically if you go to the pharmacy and your prescription drug is going to cost you a thousand dollars out of pocket and you can’t afford to pay that, they will smooth that cost out over the remaining months of the year. This is kind of a new thing for plans, though. So when we go to the pharmacy today, we expect to just pay the amount that we owe to take the prescription home. So this is going to create some additional work for plans. I think that we’ll have to see how they respond. Medicare will still continue to cover the largest share of all spending on Part D. So Medicare today pays these upfront payments and then they pay additional in reinsurance payments to plans. So I think we’ll have to just kind of watch to see what are the additional administrative burdens that plans are dealing with.

SHANOOR SEERVAI: Let’s shift now to this issue of drug development, which is usually pharma’s rallying cry, whenever there’s talk of reducing prices. Is it likely that this legislation signals a business climate where some innovation may actually be discouraged?

STACIE DUSETZINA: Yeah, it’s a great question. And it is the perpetual argument that comes up when we talk ever about reducing spending on drugs: pushback that we’re going to lose all this future drug development. So I think that one thing that is important to recognize is the way that the law is introducing drug price negotiation has already tried to acknowledge that we want to be careful about not losing the right type of innovation or these new products that are really valuable to consumers.

So they did that by basically focusing negotiations on older drugs that were nearing the end of their patent lives. And I think it gives us an opportunity to see what happens when we start to introduce some form of negotiation, but it puts those guardrails in place to make sure that the changes are not too drastic and too fast. That said, I think that there is a long way that we can go toward improving, incentivizing the right types of innovation.

Today, we allow companies to price as high as they wish and they will price as high as they can, based on what other competitors they might have. And that includes drugs that have very limited value for patients. So they might not extend your life. They may have side effects. So we really should eventually, hopefully do a better job of paying more when there’s more value being brought to the table. Like drugs that work better should command a higher price, and the drugs that don’t work as well should not have such high prices.

SHANOOR SEERVAI: Right. And to this point of not moving too fast, legislation is a compromise, and it actually took a very long time to get here. So from your perspective, what was left out and how could those pieces be achieved down the line?

STACIE DUSETZINA: So I think the biggest thing that I will be watching, and I think many people will be watching, is what happens to the price of new drugs? We have these new limits on how many price increases or how much you can raise your price over time that have never been in place in Medicare. And we have the potential for negotiation for some drugs later on. But we don’t do anything at all about new drug prices. So I think it’s going to be an important area to watch. Are companies being much more aggressive with their pricing for new products that they’re entering the market with? And if so, then I think we have to consider what is the tolerance for abusive pricing if it gets to that level? So I think that that is one of the key things that is missing and it’s missing somewhat on purpose. As you said, there’s a lot of compromise that goes on to get legislation through.

SHANOOR SEERVAI: If there was anything from the Build Back Better Act that was so hotly debated over several months that you wish we were seeing in the IRA, what would that be?

STACIE DUSETZINA: I think that having a broader touch . . . I would say if I could bring any specific piece back, I would say that closing the Medicaid coverage gap in states that have not expanded Medicaid would be a very top priority to me. Part of that is I live in a state that has not expanded Medicaid. And I know that this basically prevents people from having access to affordable coverage. I think that would be the piece most in dire need of addressing.

SHANOOR SEERVAI: I also wanted to ask, is there intention in this law to change how patients behave or is it written from a purely economic perspective?

STACIE DUSETZINA: I think that there’s a lot in this law that just tries to fix some real problems that we’ve observed over time for people with high spending in the Medicare program. In some ways, I actually think that maybe it has a potential to overcorrect and be a little bit less focused on the economics of how we know that people use prescription drugs. So for example, having an annual cap of $2,000 and then no spending required thereafter potentially could increase the use of brand-name drugs instead of generics or potential overuse of drugs. So there are these economic concerns about potential moral hazard or overuse of some products or not being sensitive to the price at all that I think we have to consider. But I think by and large, many of the consumer-focused pieces were really to fix things that are just, you know, they’ve kind of been identified and then have just seemed to get worse over time with the coverage gap and with things like just this no limit on spending.

SHANOOR SEERVAI: So is it sort of a wait and see whether this is actually a problem down the line?

STACIE DUSETZINA: So it’s going to take a few years to put all of these measures into place. And I think one of the things that we will need to monitor and understand, for example, is how often are people using a smoothing mechanism instead of just paying the full price all at once? I personally think this is an area where we should think about testing a couple of different alternative ways of applying an out-of-pocket cap to the benefit. Because we legitimately don’t know, is it better if you are going to have very high cost to have one month be very high and the rest be low cost? Or would it be better to have a monthly hard cap? Which one actually brings about the best outcomes for patients, for the Medicare program, and for plans to make sure that people are using the drugs they need and not overusing drugs that they don’t need.

SHANOOR SEERVAI: And we’ve spent much of this conversation on provisions related to Medicare and Medicare drug prices, but the IRA also expands access to free vaccines. And we’re three years into the pandemic. There are rising concerns about monkeypox and vaccination is on everyone’s mind. Could you tell us briefly, from your perspective, the significance of including free vaccines in the law?

STACIE DUSETZINA: Yeah. I think this is really important because vaccines are sometimes more expensive than we might think that they should be. For Medicare beneficiaries, for example, if your vaccines were covered under the medical benefit, they were typically covered without cost sharing. So this kind of helps to level the playing field and not make it so arbitrary feeling to you, whether you have to pay for a vaccine or not. So knowing that they’re all no cost to you is great. The free vaccines also apply to Medicaid and the CHIP program. And so that is certainly a group for which broader access to vaccines, making it easier for people, would be a really great start.

SHANOOR SEERVAI: Right. And talking about equity implications, it’s estimated that nearly half a million Black and brown Americans will see some relief with this new law, but we don’t see that structural racism is explicitly addressed. We’ve talked about pharma coequity with your colleague Utibe Essien on The Dose before. Do you think that in some ways the law brings us one step closer to that?

STACIE DUSETZINA: I think this is always a complex question when we think about who is going to gain the most benefits from the changes that we’re seeing? And I’ll just talk through maybe the Medicare benefit design. So in a lot of the work that I’ve done, I’ve found that it tends to be more middle-class Americans. Like people with modest incomes, but not very low incomes, who are kind of caught in this trap of unlimited out-of-pocket cost. And part of this is that the Medicare program has subsidies for people who have very low incomes. And so it ends up being almost like a middle-class socioeconomic kind of concern that you make too much money to get subsidies. And so you can’t really afford your drugs under the program today. So I tend to think that the group that is likely to benefit the most from these changes are people with complex illnesses and people who have modest incomes — not very high incomes and not very low incomes. That’s still a very large group of people who would be benefiting.

When thinking about some of the specific ways I think it will improve equity, one of the changes that is also being made is extending full subsidies to people who are between 135 and 150 percent of poverty. So this group of patients right now qualifies for extra help or partial subsidies under the Medicare program. And it has been shown that a large percentage of people who qualify for that benefit don’t even enroll into it because it’s very cumbersome to do so. And then even if you did enroll, you still have costs that are probably far too high given your low income. So this law actually expands the full subsidies to people. So it should bring in quite a large number of people who weren’t enrolled in benefits that they were qualified for and actually make their drug costs a lot lower. So I think that that has the potential to actually improve equity to some degree.

SHANOOR SEERVAI: But there’s still no specific or explicit commitment to addressing structural racism, which has now been well documented as a huge problem in health care.

STACIE DUSETZINA: That’s right. So this is really focused on modifying the benefit designs in large ways, but not specifically targeting any subgroups of patients I think.

SHANOOR SEERVAI: And so what’s the work ahead when this law starts to unfold in practice? How could these health care provisions be extended potentially to address racism as policymakers look ahead?

STACIE DUSETZINA: I think part of it is being able to closely monitor who has access to treatments and who doesn’t. This is a very difficult thing for us to measure because typically we use administrative claims data. We observe what people did and not what they should have been doing based on what their doctor had recommended. So I think it would be important to think about who is actually accessing the benefits that they are entitled to and how? And how does that differ by group?

So one example, imagine you’re a person who needs a very expensive drug and you get hit with a $2,000 all up front, the first fill. How many people are aware that they could actually opt into a smoothing mechanism that lowers what they have to pay so that they can walk away from the pharmacy with that treatment, and then just pay it off over time? This is an education piece that is really being emphasized. The Secretary [of Health and Human Services] has some responsibilities per the law. Pharmacists will have responsibilities and plans will have responsibilities. So I think part of this might be emphasizing the need to share this information equitably, not to allow racism, to actually prevent people from getting this information, and learning how to take advantage of these benefits so that we can make sure that everyone can afford to get started on treatment.

SHANOOR SEERVAI: And what are effective mechanisms for making sure this is happening, monitoring this on the ground?

STACIE DUSETZINA: I would imagine that you could look at the demographics of people who are opting into smoothing mechanisms within the plans. But I think the other thing might be is considering ways of standardizing information about these services or figuring out if there’s specific outreach that is needed to some communities to make sure that people understand. I spoke with a group of advocates recently. And it’s really funny because I think we’re all suspicious when something sounds really too good to be true almost. The changes here for people who have very expensive drugs are almost too good to be true. And having to reemphasize that, no, it actually is that good and will save you that much money.

But I think that there is a lack of trust. If you’ve repeatedly been burned by the health care system — which I mean, feels like almost everyone who interacts with the health care system leaves feeling burned — that we have to gain that trust that the benefit actually will work better for you. And we need to make sure that you are taking advantage of the best options for you.

I have heard a lot of people who have been concerned about the timing of the changes. I am encouraged by the fact that at least for some Medicare beneficiaries, they’re going to see some changes soon: low-cost insulin, $35 insulin on the Medicare Part D program will be coming next year for all of the plans. That access to free vaccines. And then in 2024 and 2025, we start to see these more substantial changes. I wish policies moved faster, but I also know how complicated they are. So we have to move carefully and as quickly as possible.

SHANOOR SEERVAI: Dr. Dusetzina, thank you so much for joining me today.

STACIE DUSETZINA: Thank you so much. It was a great time.

SHANOOR SEERVAI: Listeners, a quick note before I let you go. On the next episode, I’ll be talking to Dr. Bob Wachter, one of the nation’s foremost experts on the pandemic, about what it’s like to still be living with COVID in 2022. Is there anything you want to know about the pandemic but have been too afraid to ask? If you want an answer, email us your questions on [email protected], or find me on Twitter, @ShanoorSeervai. If you send us your questions by Tuesday, September 13th, we’ll be able to bring them to Dr. Wachter. Thanks for listening.

This episode of The Dose was produced by Jody Becker, Mickey Capper, Naomi Leibowitz, and Joshua Tallman. Special thanks to Barry Scholl for editing, Jen Wilson and Rose Wong for our art and design, and Paul Frame for web support. Our theme music is “Arizona Moon” by Blue Dot Sessions. Our website is thedose.show. There you’ll find show notes and other resources. That’s it for The Dose. I’m Shanoor Seervai. Thank you for listening.

Show Notes

Stacie B. Dusetzina

Publication Details

Date

Contact

Shanoor Seervai, Former Researcher, Writer, and Lead Podcast Producer

[email protected]

Citation

Shanoor Seervai, “What the Inflation Reduction Act Really Means for Health Care,” Sept. 9, 2022, in The Dose, produced by Jody Becker, Mickey Capper, Naomi Leibowitz, and Joshua Tallman, podcast, MP3 audio, 26:06. https://doi.org/10.26099/g1nz-tn34