Millions of American citizens struggle to afford their out-of-pocket health care costs and premiums. The Inflation Reduction Act (IRA) is finally signed into law this week by president Joe Biden. It makes notable changes toward improving the affordability and accessibility of Medicare 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. First changes will take effect in 2023, but most of them will affect Medicare changes in 2026.
Under the new law, the U.S. government now will be able to negotiate prices on the some prescription drugs, cap costs at $2,000 per year for people on Medicare (before cap was $7000), limit the monthly cost of insulin to $35 for seniors, and extend subsidies for people buying their own health coverage through the Affordable Care Act (Obamacare). The law will also provide free vaccines for seniors.
EXTENDING PREMIUM SUBSIDES IN AFFORDABLE CARE ACT
In 2021, Congress passed the American Rescue Plan Act, which significantly increased premium subsidies in the Affordable Care Act marketplaces, saving people who sign up for plans there thousands of dollars in annual premiums. While this move attract high enrollment in marketplace, the subsidies were set to expire at the end of 2022. The Inflation Reduction Act (IRA) extends this 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 on all others parts of life.
MEDICARE PART D REDESGINED
Before the Inflation Reduction Act, the U.S.government was prohibited from any acting in price negotiations with drug companies on behalf of Medicare population. With IRA, federal government will be allowed to negotiate prices for the most expensive and most used Medicare drugs. It will establish a process of proposing prices for certain drugs by Health and Human services secretary. From 2026, Medicare will begin negotiating the price of 10 drugs, followed by an additional 15 drugs in 2027, and finally an additional 20 drugs in 2029 and beyond.
The negotiation process applies to drugs covered under Medicare Part D that lack a generic or comparable alternative, though drugs under Medicare Part B will eventually be included. If you take a drug with a negotiated price, your Medicare Part D plan has to cover that drug. The list of the drugs covered with IRA is not public yet. Any drugmaker company that refuses to negotiate may face a tax penalty, though that tax may be lifted if the drugmaker chooses to withdraw their drug from the Medicare program rather than negotiate their price. Starting in 2023, drugmaker companies will have to cap their drug price increases at the rate of inflation.
Starting in 2024, the national base beneficiary premium for Medicare Part D plans cannot increase by more than 6% per year. Your annual Medicare Part D premiums might not go up as quickly as they otherwise would. But on the other hand, the national base beneficiary premium is just one component of what you actually pay. Your premiums still will vary based on location, insurance company and plan.Finally, starting with 2023, there will be no deductible or cost-sharing requirements for adult vaccines covered by Medicare Part D. It essentially means that you can take any vaccines that are covered under Part D without any out-of-pocket costs.
CHANGES ON INSULIN AND OUT-OF-POCKET CAPS
Under Inflation Reduction Act, starting in 2023 the cost of insulin will be capped at $35 a month for patients enrolled in Medicare only. IRA does not cap the cost of insulin for patients that are under private health insurance. The monthly cap is very important change because patients usually need to buy multiple vials of insulin per month to maintain their health, which can cause costs to skyrocket. But it is important to say that Medicare will still have flexibility to choose what type of insulin it covers, meaning it won`t have to cover every insulin product there is on the marketplace.
On the other hand, before IRA people enrolled in Medicare Part D had to spend $7000 out-of-pocket on their drug prescription before qualifying for catastrophic coverage (under catastrophic coverage, patients are only charged either a copayment or coinsurance of 5% of the price of drug taken). With IRA, starting in 2024 coinsurance of 5% in catastrophic coverage will be eliminated, and out-of-pocket cap on prescription drugs will be set on $2000 for Medicare beneficiaries. After you hit the $2,000 out-of-pocket cap in 2025, you won’t have to pay any more copayments or coinsurance for covered drugs for the rest of the year. This is probably the most significant change that Inflation Reduction Act brings on Medicare.
SUMMARY
In summary, Inflation Reduction Act redesigned Medicare Part D with following changes:
- Elimination of 5% cost-sharing in the catastrophic coverage of the Part D, effective in 2024
- Out-of-pocket costs are capped at $2,000, effective in 2025
- Capping out-of-pocket insulin spending at $35 per month;
- Cost smoothing throughout the year;
- Limiting premium growth to no more than 6% each year between 2024 and 2029;
- Making private insurance plans and manufacturers pay more, with Medicare spending significantly less overall.