Blog

Get to Know the Inflation Reduction Act: Medicare Drug Prices

 
President Biden signed the Inflation Reduction Act into law this week, ushering in significant changes to Medicare drug pricing. Read on to learn more about changes to the program.
 
On Tuesday, August 16, President Biden signed the Inflation Reduction Act into law. The package passed by Congress last week contains climate, tax, and health related provisions including significant changes to Medicare Drug pricing and an extension of enhanced Affordable Care Act (ACA) subsidies. 
 
History of the Inflation Reduction Act 
Congressional Democrats had been trying to pass a form of President Biden's Build Back Better (BBB) Act for more than year, but faced resistance from within their own party, particularly Senator Joe Manchin (D-WV) who continued to express concerns about the bill until a few weeks ago. 

However, on July 27, Senator Manchin and Senate Majority Leader Chuck Schumer announced they had reached a deal on the Inflation Reduction Act and Congress passed the bill along party lines last week. Although pared down from the original BBB Act, the IRA reflects the same core priorities. 
 
How does the Inflation Reduction Act affect Medicare drug prices? 
In response to the high cost of prescription drugs, the Inflation Reduction Act makes significant changes to Medicare drug pricing.  
 
Negotiate Drug Prices 
For the first time, Medicare will be able to directly negotiate the prices of certain drugs. The Department of Health and Human Services (HHS) will identify the most expensive drugs that lack a generic or competitors and target those for negotiations. Negotiations will begin in 2026 with 10 drugs and include 20 drugs by 2029.1 Initially, only Medicare Part D drugs will be subject to negotiation, but Medicare Part B drugs will also become eligible.2  
 
Limit On Price Increases 
Beginning next year, the IRA will limit the rate at which drug companies can raise Medicare drug prices. If companies raise the price of medications faster than inflation, they must pay the revenue back to Medicare.3  
 
Limit On Part D Premium Growth 
The IRA will limit the growth in Medicare Part D premiums to 6% from 2024 to 2029.4 
 
Cap Out-of-Pocket Costs 
There is currently no limit on Medicare enrollees' out-of-pocket spending on medications. The IRA would cap Medicare enrollees' total out-of-pocket spending on drugs at $2,000 by 2025.5 About 1.5 million Medicare enrollees exceeded $2,000 in out-of-pocket drug costs in 2019.6 The IRA would also cap Medicare enrollee's cost for insulin at $35 per month beginning next year.7 
 
Expand Affordable Care Act Subsidies 
In addition to the Medicare drug pricing provisions, the legislation also extends the enhanced Affordable Care Act (ACA) subsidies that passed in the American Rescue Plan Act (ARPA) through 2025.8 ARPA increased subsidies in the ACA marketplace for folks who were already eligible for them and allowed folks with certain incomes to qualify for subsidies for the first time.

An estimated 13 million people would experience premium increases if the enhanced subsidies were not extended.9 Nearly 2 million people were estimated to lose health care coverage if the subsidies had expired at the end of this year.10 
 
 
 
[1]  The Inflation Reduction Act is a Milestone Achievement in Lowering Americans' Health Care Costs. (2022). The Commonwealth Fund. Retrieved from https://www.commonwealthfund.org/blog/2022/inflation-reduction-act-milestone-achievement-lowering-americans-health-care-costs 
[2]  McAuliff, M. (2022). Inflation Reduction Act Contains Important Cost-Saving Changes for Many Patients — Maybe for You. Kaiser Family Foundation. Retrieved from https://khn.org/news/article/medicare-democrats-drug-price-negotiations-subsidies-insurance-legislation/
[3]  Ibid.
[4]  The Inflation Reduction Act is a Milestone Achievement in Lowering Americans' Health Care Costs. (2022). The Commonwealth Fund. Retrieved from https://www.commonwealthfund.org/blog/2022/inflation-reduction-act-milestone-achievement-lowering-americans-health-care-costs
[5]  Ibid.
[6]  McAuliff, M. (2022). Inflation Reduction Act Contains Important Cost-Saving Changes for Many Patients — Maybe for You. Kaiser Family Foundation. Retrieved from https://khn.org/news/article/medicare-democrats-drug-price-negotiations-subsidies-insurance-legislation/
[7]  The Inflation Reduction Act is a Milestone Achievement in Lowering Americans' Health Care Costs. (2022). The Commonwealth Fund. Retrieved from https://www.commonwealthfund.org/blog/2022/inflation-reduction-act-milestone-achievement-lowering-americans-health-care-costs
[8]  McAuliff, M. (2022). Inflation Reduction Act Contains Important Cost-Saving Changes for Many Patients — Maybe for You. Kaiser Family Foundation. Retrieved from https://khn.org/news/article/medicare-democrats-drug-price-negotiations-subsidies-insurance-legislation/
[9]  Ibid.
[10]  The Inflation Reduction Act is a Milestone Achievement in Lowering Americans' Health Care Costs. (2022). The Commonwealth Fund. Retrieved from https://www.commonwealthfund.org/blog/2022/inflation-reduction-act-milestone-achievement-lowering-americans-health-care-costs
 
 
 

Contributors

Contributors