How the Inflation Reduction Act Reduces Health Care Costs

High drug and health care costs continue to prevent millions of Americans from achieving full health. Nearly 1 in 2 American adults report difficulty affording health care costs. It’s no wonder that voters consistently rank bringing down prescription drug prices and other measures to reduce the cost of care as among Congress’ top priorities.

The Inflation Reduction Act, when passed by the House of Representatives and signed into law by President Joe Biden, will give a lifeline to people struggling with health costs by providing much-needed financial relief for the health coverage and medications they need to survive and thrive. The bill improves health care and affordability by:

  • Empowering Medicare to negotiate with drug companies to lower prices
  • Preventing drug companies from raising Medicare prices in excess of inflation
  • Setting a new cap for Medicare beneficiaries on annual out-of-pocket costs for drugs, plus a $35 monthly cap on insulin cost sharing
  • Providing more generous subsidies for health insurance marketplace coverage, thereby granting financial help to middle-class families facing high premiums and guaranteeing that lower-income people have a $0 premium plan option

Alongside with these changes to health care, the Inflation Reduction Act makes historic investments to address climate change and takes action to ensure corporations pay their fair share in taxes.

ACTIONS TO LOWER HEALTH CARE COSTS ARE DESPERATELY NEEDED IN THE UNITED STATES

1 in 2

Share of American adults who struggle to afford health care costs

1 in 4

Share of American adults who have not taken their medication as prescribed due to cost

50%

Share of drugs covered by Medicare with price increases that outpaced inflation in 2020

Lower drug prices for older adults

High and rising drug prices block access to care and treatment. One in 4 U.S. adults have not taken their medication as prescribed due to cost. Amid news reports of lethal insulin rationing due to cost and survey data demonstrating how cost interferes with taking medication as prescribed, Congress has taken decisive action to bring down drug prices.

For nearly 20 years, the federal government has been prohibited by statute from negotiating drug prices with manufacturers; instead, Medicare has had to accept the pharmaceutical industry’s prices, often set as high as the market will bear. The Inflation Reduction Act takes a major step by allowing the secretary of the U.S. Department of Health and Human Services to negotiate prices for the top 10 drugs by total Medicare expenditures in 2026, rising to 20 drugs per year by 2029. A previous Center for American Progress analysis of earlier legislation that was the basis for the Inflation Reduction Act’s drug price reforms estimated thousands of dollars in savings per year for some Medicare beneficiaries. Patients with conditions such as cancer, diabetes, and arthritis are among those expected to benefit directly from lower prices. In addition, these reductions in drug costs will translate into lower premiums for Part D plans.

The Inflation Reduction Act takes a major step by allowing the secretary of the U.S. Department of Health and Human Services to negotiate prices for the top 10 drugs by total Medicare expenditures in 2026, rising to 20 drugs per year by 2029.

Not only does Medicare pay high prices for drugs, but drug companies also have frequently hiked prices well above inflation. For example, in 2020, pharmaceutical companies raised prices faster than inflation for half of all Medicare-covered drugs. More recently, from January to July 2022, pharmaceutical companies hiked the prices for more than 1,000 drugs, including 75 of the top 100 Medicare Part D drugs with the greatest spending. The Inflation Reduction Act will require pharmaceutical companies to rebate Medicare for price hikes in excess of inflation.

The Inflation Reduction Act also gives older adults new financial protection against high prescription drug costs. Unlike most private insurance plans, Medicare Part D had no limit on what older adults pay out of pocket. The Inflation Reduction Act sets an annual limit of $2,000 per year and smooths out-of-pocket spending by subjecting out-of-pocket payments to a maximum monthly cap. In 2019, more than 1 million Medicare beneficiaries spent more than $2,000 out of pocket on prescription drugs; the Kaiser Family Foundation estimated those beneficiaries would have saved 38 percent of their annual costs—more than $1,200—if a $2,000 cap had been in place.

In addition, the Inflation Reduction Act guarantees that Medicare beneficiaries pay no more than $35 per month out of pocket for insulin. Those without low-income subsidies could save an average of $19, or 35 percent, of their insulin costs each month.

Finally, starting next year, the Inflation Reduction Act will eliminate cost sharing for vaccines for Medicare Part D beneficiaries, 4 million of whom received a Part D-covered vaccine in 2020. The Inflation Reduction Act will also require states to cover vaccines for Medicaid-enrolled adults.

More affordable health coverage

The Inflation Reduction Act lowers costs for millions of people who purchase health coverage on their own by extending the enhanced financial assistance made available through the American Rescue Plan Act (ARP) through 2025. By making premium tax credits newly available to more middle-class families and improving the generosity of financial help for those previously eligible, the ARP helped drive marketplace enrollment to a record high of 14.5 million and the U.S. uninsurance rate to an all-time low of just 8 percent. Thanks to the ARP, the average marketplace enrollee saves $800 per year.

Congress will avert substantial premium increases for enrollees in 2023 and is helping to keep Americans insured.

By extending these subsidies, Congress will avert substantial premium increases for enrollees in 2023 and is helping to keep Americans insured. Before the Inflation Reduction Act, the enhanced subsidies were set to expire at the end of this year, which meant a projected 10 million Americans would have lost their subsidies or seen them dramatically reduced, and 3 million Americans would have become uninsured.

Ensuring the continuation of this financial assistance is important not only for those enrolled in marketplace coverage now but also for those who may need it in the future because of life transitions such as job loss, aging off a parent’s plan coverage, moving, changes in family composition, or fluctuations in incomes. Such transitions are common: In 2021, nearly 3 million people enrolled in marketplace coverage during a special enrollment period. Marketplace coverage is a lifeline for people who lack access to insurance through their employer or a public program.

Conclusion

The Inflation Reduction Act will improve the affordability of health care for millions of Americans, both young and old. The extension of the enhanced subsidies for Affordable Care Act plans puts the nation on track to sustain high rates of health coverage, provides stability for current marketplace enrollees, and helps ensure that Americans will have affordable options when they need to turn to the marketplaces for coverage. The Medicare program’s ability to negotiate prescription drug costs for Part B and Part D will be transformational, and older adults will soon see relief from out-of-pocket costs for drugs as well. By passing the health components of the Inflation Reduction Act and improving access to coverage and medications, Congress will establish foundational reforms on which to make further improvements to health and well-being in years to come.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.

AUTHORS

Nicole Rapfogel
Research Associate

Emily Gee
Vice President and Coordinator for Health Policy

Article Source: American Progress

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