Inflation Reduction Act and Health Insurance


WRITTEN BY: Craig Sturgill

UPDATED: NOVEMBER 08, 2022 | 2 MIN READ

With the climbing costs of health care plans and prescription drugs, millions of Americans struggle to afford the out-of-pocket costs and premiums of their health plans. Fortunately, the Inflation Reduction Act, a recent bill passed by Congress and signed into law by President Joe Biden, may offer relief. Read on to learn more about this historical law and its impact on healthcare and prescription costs for yourself and your loved ones.

What Is the Inflation Reduction Act?

The Inflation Reduction Act (IRA) is a recently passed law that aims to reduce the deficit by $300 billion, ease the transition to clean energy, and lower prescription drug prices and out-of-pocket costs for Medicare beneficiaries.

The Inflation Reduction Act was passed by the 117th U.S. Congress and signed into law by President Joe Biden on August 16, 2022. 

Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) sponsored the budget reconciliation bill.

Key provisions of the Inflation Reduction Act

The Inflation Reduction Act aims to raise taxes on corporations, lower the cost of prescription drugs, invest in IRS tax enforcement, extend ACA subsidies, and make a historic investment in combating climate change. Key provisions of the law include:

  • A 15% Corporate Minimum Tax Rate: Corporations with at least $1 billion in income pay a new 15% tax rate.
  • Prescription Drug Price Reform: Starting in 2025, Medicare recipients will have a $2,000 annual cap on out-of-pocket prescription drug costs.
  • IRS Tax Enforcement: The IRA invests $80 billion in the IRS over the next decade to relieve underfunding.
  • Affordable Care Act (ACA) Subsidy Extension: ACA subsidies are now extended through 2025.
  • Climate Change Investments: The law includes numerous investments in climate protection: premium tax credits aimed at reducing carbon emissions, tax credits for households to offset energy costs, and clean energy production investments.

The Inflation Reduction Act’s Healthcare Provisions

In addition to fighting the effects of climate change and taxing wealthy corporations, the Inflation Reduction Act reduces the deficit by extending ACA premium subsidies, enabling market stability and increasing retention as marketplaces prepare for the 2023 Open Enrollment season.

Extending ACA premium subsidies

The federal government subsidizes medical insurance premiums under the Affordable Care Act to lower premiums. These subsidies were initially set to expire at the end of 2022 but are now extended through 2025.

According to the US Department of Health and Human Services, about 3 million Americans would have lost their health insurance. This extension helps millions of others avoid premium increases.

How the Inflation Reduction Act Affects Prescription Drug Costs

The Organization for Economic Cooperation and Development states Americans pay 2-3 times what citizens of other countries pay for medication. The Inflation Reduction Act offers Americans relief from rising prescription drug costs in the following ways.

Medicare cost negotiation

Allowing Medicare to negotiate prices with pharmaceutical companies has been prohibited for nearly 20 years. Under the IRA, the federal government can negotiate the price of prescriptions to lower costs for millions of Americans.

Caps on out-of-pocket prescription costs

The IRA caps out-of-pocket prescription drug costs at $2,000 annually. The law also increases insulin affordability for diabetic beneficiaries, limiting the medication’s out-of-pocket costs to $35 monthly. The law also eliminates cost-sharing for adult vaccines.

Caps on Part D premium cost growth

To prevent significant premium increases, the IRA includes a cap in Part D premium cost growth at 6 percent from 2024 to 2029. Drug companies have to rebate the difference if they raise prices higher than inflation.

How the Inflation Reduction Act affects state prescription costs

Many states use federally negotiated Medicare prices as reference rates for payment limits. The IRA allows states to extend these federal negotiations to state-regulated marketplaces.

Additionally, states may establish penalties for drug manufacturers that raise their prices above inflation, as the IRA rebate protection extends to state-regulated markets. States can also enact out-of-pocket caps on insulin for Medicare beneficiaries.

How many Americans benefit from the Inflation Reduction Act?

By extending ACA premium subsidies and increasing access to prescription drugs, the IRA helps save money on healthcare costs. According to the White House, here’s how the new law is expected to impact Americans by the numbers:

  • About 13 million Americans will save an average of $800 per year on health insurance premiums, with 3 million more Americans able to keep their insurance with the subsidy extension
  • About 50 million Americans with Medicare Part D will have capped pharmacy costs at $2,000 per year, with an estimated 5-7 million Medicare beneficiaries paying lower prescription drug costs

Inflation Reduction Act FAQs

What are some potential consequences of the Inflation Reduction Act?

The IRA may fall short of bringing immediate relief to consumers. Prescription drug negotiations could take years to go into effect. In fact, they limited negotiations to 10 drugs in 2026, 15 each in 2027 and 2028, and 20 in 2029.

What is the goal of the Inflation Reduction Act?

The Inflation Reduction Act strives to reduce the deficit by $300 billion, lower prescription drug prices and out-of-pocket costs for Medicare beneficiaries, and ease the transition to clean energy.

What is the purpose of this Act?

The Inflation Reduction Act aims to lower prescription drugs, health care, and energy costs.

What does the Inflation Reduction Act do?

The IRA raises corporate taxes, lowers certain prescription drug costs, invests in IRS tax enforcement, extends ACA subsidies, and invests in combating climate change.

The Inflation Reduction Act and Health Insurance: A Recap

The IRA dramatically reduces the cost of health care for Medicare beneficiaries and Americans who buy their own insurance coverage. The law’s progress on prescription drug cost negotiation and out-of-pocket capping could also pave the way for future reforms. 

Understanding this new legislation also helps you find the best insurance options for your health care and prescriptions.