Inflation Reduction Act Healthcare Implications

By Greg Knight August 26, 2022

On August 16, 2022, President Joe Biden signed into law the high profile legislation known as the Inflation Reduction Act (IRA). This legislation has a major impact on various sectors through a wide range of provisions. In the healthcare sector, the legislation focuses on Medicare prescription drugs. The IRA includes several provisions to reduce prescription drug costs for people with Medicare and to reduce drug spending by the federal government.

Here are the key changes in the healthcare sector:

• Premium subsidies in the ACA marketplaces that were increased by the 2021 American Rescue Plan Act were set to expire at the end of 2022. The IRA extends the subsidies three years through 2025, which will prevent millions of people from losing coverage and seeing increases to their premiums.
• Starting in 2026, Medicare Part B and D gain negotiation powers that will apply to the price of a limited number of drugs with no generic or biosimilar competition. Ten drugs will be eligible for negotiations. Eligibility expands to twenty drugs by 2029.
• The IRA limits out-of-pocket spending on insulin products in Medicare Part D to $35 per month. It also eliminates cost-sharing for adult vaccines under Medicare Part D and under Medicaid. Those changes will be effective in 2023.
• Effective in 2024, the IRA eliminates the 5 percent cost-sharing in the catastrophic phase of Medicare Part D, which kicks in after enrollees reach $7,050 in out-of-pocket costs for covered drugs. Effective in 2025, the law caps patients’ out-of-pocket costs in Part D at $2,000.
• The law includes limiting annual increases in Part D premiums to 6 percent from 2024 to 2029 to prevent large premium increases.
• The IRA institutes inflation caps in Medicare Part D that limit price increases for drugs year over year. Drug manufacturers will be required to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries. The inflation rebate provision will be implemented in 2023 using 2021 as the base year for determining price changes relative to inflation.