How the Inflation Reduction Act Will Reduce Health Care Costs for Seniors

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Key Takeaways

  • The Inflation Reduction Act (IRA) of 2022 was signed into law by President Biden.
  • The legislation’s key provisions include tackling climate change, lowering some health care costs for older people, reducing the deficit, and fighting inflation.
  • Health care components of the new law are aimed largely at drug savings for those with Medicare Part D plans.
  • People with insurance through the Affordable Care Act will also benefit, thanks to an extension of federal subsidies for premiums.

President Joe Biden on Tuesday signed into law the Inflation Reduction Act (IRA), a sprawling piece of legislation designed to combat climate change, tax corporations more fairly, and reduce health care spending.

While most of the health-related measures will impact Medicare beneficiaries age 65 and older, the millions of individuals insured through the Affordable Care Act’s (ACA) health insurance marketplaces will benefit, too. That’s thanks to an extension of a federal subsidy that reduces monthly premiums, originally introduced under a 2021 COVID stimulus bill.

The IRA is not as robust as President Biden’s Build Back Better Act, which didn’t gain sufficient support in Congress. But advocates for seniors applauded what the new law does contain.

“The IRA’s financial protections and structural improvements will be nothing short of lifesaving,” the Medicare Rights Center, which helps people on Medicare understand their rights and benefits, said in a statement. “Every day on Medicare Rights’ national helpline, we hear from older adults and people with disabilities who are struggling to pay for care. They may go without, or may cut back on other basic needs, like food or rent, just to fill a prescription. The IRA will help ensure fewer people face these impossible choices.”

Jo Ann Jenkins, the CEO of AARP, said drug prices are one of the biggest financial issues older Americans face.

“We have made our voices loud and clear: Drug prices are out of control, and enough is enough,” she said in a statement.

Here’s where—and when—Americans can expect to start seeing savings on health care costs.

Medications Will Be Cheaper for People on Medicare

Medicare Part D is a supplement to Medicare that covers prescription drugs seniors take at home. In addition to their monthly premiums, those enrolled in Medicare Part D pay a portion of the cost of most prescription drugs they need.

Beginning in 2025, the out-of-pocket costs Medicare Part D beneficiaries spend on medication will be capped at $2,000 per year, rather than 25% of total drug costs.

This move will benefit over a million people each year, according to the Kaiser Family Foundation (KFF) a health care research firm based in Washington, D.C. The cap will be especially helpful for people who take expensive drugs for life-threatening conditions, such as cancer. 

Drug Manufacturers Will Face Penalties for Price Increases

Beginning in October, if the price of a Part D prescription drug is raised by more than the rate of general inflation, the drug manufacturer will have to give Medicare  the amount of the increase above the inflation rate. That same penalty begins for Medicare Part B drugs (outpatient drugs given in a hospital or doctor’s office, such as chemotherapy) in January 2023.

Individuals won’t see that money, though. The money goes to Medicare to help cover costs. 

The Government Will Negotiate Drug Prices

Medicare advocacy groups and members of Congress have long pushed for the Department of Health and Human Services (HHS), which runs Medicare, to negotiate drug prices of 10 drugs with pharmaceutical companies rather than let the firms set the prices unilaterally.

Beginning in 2023, the HHS Secretary will be able to negotiate the prices of drugs used by many Medicare patients.

The negotiated prices will go into effect in 2026 for drugs covered under Part D and in 2028 for drugs covered under Part B.

More drugs will be up for negotiation each year for a total of 60 drugs by 2029.

According to AARP, the first drugs to enter price negotiations may include:

  • Eliquis for atrial fibrillation
  • Januvia for type 2 diabetes
  • Xtandi for prostate cancer
  • Myrbetriq for overactive bladder
  • Orencia for rheumatoid arthritis

Coinsurance Will Be Waived

Right now, Medicare beneficiaries who take brand-name drugs rather than generics must spend $3,000 out of pocket before qualifying for what’s known as “catastrophic coverage.” Even then, though, they must a 5% coinsurance rate on any drugs they’re prescribed.

The new law eliminates that coinsurance beginning in 2024. 

Insulin Prices Will Be Capped

Beginning in 2023, the cost of insulin will be capped at $35 per month for Medicare beneficiaries. This provision does not apply to those who only have private insurance or no insurance.

Medicare Part D Plans Will Be Cheaper—and More People Will Qualify

Under the IRA, monthly premiums for Medicare Part D plans cannot increase more than 6% per year through at least 2029.

In addition, the income level that qualifies seniors for a Part D subsidy to help pay for drug costs will increase, allowing more people to be eligible. Under the new law, an individual will need an annual maximum income of 150% of the federal poverty level ($20,385 for an individual in 2022), compared the the previous max of 135% of the federal poverty level.

What the Plan Leaves Out

While supportive of the new laws, advocates like The Medicare Rights Center say much has been left out.

“We will continue to advocate for needed changes, including those that were under consideration but ultimately left out of the bill, such as allowing Medicare Part B to cover comprehensive vision, dental, and hearing services; investing in Medicaid home- and community-based services; closing the Medicaid coverage gap; and streamlining the Medicare Part D appeals system,” reads their statement.

The Medicaid coverage gap is particularly concerning for many health policy experts. A coverage gap exists in 11 states because of their legislatures’ refusal to expand Medicaid in tandem with the Affordable Care Act. It means that 2 million people with income below the poverty level aren’t eligible for insurance coverage unless they are disabled, pregnant, parenting a minor child, or at least 65 years old.

“The real heartbreaker for me is the coverage gap. We worked really hard to try to find a solution so that people in states without the Medicaid expansion would be able to get access to the subsidies,” Sarah Lueck, Vice President for Health Policy at the Center on Budget and Policy Priorities in Washington, D.C., told Verywell. “I had high hopes that this would be the moment where we solved that [federally] until their states expand Medicaid. But a lot of folks in these states will continue to wait for a while.”

What This Means For You

If you receive—or will receive—your health care benefits through Medicare, you’ll see some cost savings in the next few years, largely surrounding drug costs.

By Fran Kritz
Fran Kritz is a freelance healthcare reporter with a focus on consumer health and health policy. She is a former staff writer for Forbes Magazine and U.S. News and World Report.