On August 16, 2022, President Joe Biden signed the Inflation Reduction Act (IRA) into law. Otherwise known as H.R. 5376, this sweeping piece of legislation earmarks more than $700 billion in funds for several top agenda items for Democrats, including environmental and public health reform.
On the healthcare front, the IRA has three key goals:
1. Lower out-of-pocket spending.
Over the next few years, this bill will limit Medicare beneficiaries’ spending under Part D in three critical ways:
- Beginning in 2024, it will eliminate the 5% coinsurance above the “catastrophic threshold.”
- In 2025, it will cap annual out-of-pocket spending at $2,000.
- Beginning in 2025, it will require Part D sponsors to give beneficiaries the option to pay their out-of-pocket prescription drug costs in monthly installments – with a maximum monthly cap on out-of-pocket spending.
This means that Part D beneficiaries will not have to worry about covering the cost of their prescriptions up front – and that both total annual and monthly out-of-pocket costs will be limited.
Between 2024 and 2030, the IRA will also limit the annual increases in Part D premiums. But starting in 2023, the bill will restrict the cost-sharing for insulin to $35 a month for Medicare beneficiaries and eliminate cost-sharing for adult vaccines covered under Medicare Part D. Finally, a Medicaid and Children's Health Insurance Program provision will help improve vaccine access for Medicaid-enrolled adults.
2. Reduce drug prices.
The IRA includes two policies designed to help with prescription costs. The first will require the federal government to start negotiating the prices of some drugs covered under Medicare Part D in 2026, including Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and Fiasp. Millions of Medicare enrollees take one or more of these drugs to treat serious conditions such as blood clots, diabetes, cardiovascular disease, heart failure, autoimmune diseases, and chronic kidney disease.
The White House estimates this provision will lower medication costs for up to 7 million Medicare beneficiaries.
The second policy will require drug companies that raise prices faster than inflation to pay rebates on prescriptions covered under Medicare Parts B and D, beginning in 2023.
3. Expand coverage.
In 2024, this bill will extend eligibility for full Part D low-income subsidies to low-income beneficiaries with annual household incomes up to 150% of the federal poverty level. According to the White House, this provision will insure 3 million additional Americans — particularly helping low-income Black and Hispanic Medicare beneficiaries.
Beyond these initiatives, the IRA includes a provision that delays the implementation of former President Trump’s drug rebate rule from 2027 to 2032. It also extends premium subsidies in the ACA marketplace (which were set to expire at the end of 2022) for another three years.
What This Means for Employees’ Financial Well-Being
Now that we’ve covered the “what” of this bill, let’s discuss the “why.” We live in one of the wealthiest countries in the world, yet a single trip to the ER could put any employee’s financial well-being in peril. Between rising insurance premiums and prohibitive drug prices, employees are finding it increasingly difficult to afford even routine medical care. That’s precisely why the IRA is so pivotal.
This bill primarily impacts Medicare enrollees and individuals who have purchased coverage through the ACA marketplace. In 2020, for example, 1.4 million Medicare Part D enrollees without low-income subsidies spent more than $2,000 on out-of-pocket prescription costs. Capping their prescription costs – by limiting total annual out-of-pocket spending and offering more flexible and affordable ways to pay for prescription drugs – will keep money in those individuals’ pockets.
However, it remains to be seen how this bill will impact employer-sponsored health plan participants. Some experts expect pharmaceutical companies to raise prices for insurance carriers, which will eventually work its way down to employers and employees in the form of higher premiums. Meanwhile, some expect provisions like the pharma rebate to limit the growth of prices for drugs covered under private insurance.
Paytient’s Take on the IRA
About 64 million people are currently enrolled in Medicare, and that figure is expected to grow to 80 million by 2030. The main thrust of the IRA affects Medicare beneficiaries, and drug companies will experience a profit crunch as millions of additional people enroll in a program that caps their profits. With nowhere else to turn for profit margins and growth, employer-sponsored insurance has historically experienced increased costs when changes like this happen in the public insurance market.
This historical trend will continue unless Congress acts to limit drug costs for the employed population. With Republican control of the House (as of the 2022 midterm election) and a Democratic majority in the Senate, gridlock in D.C. is expected to worsen — meaning no relief for employers for the foreseeable future. Drug cost increases will likely accelerate for employers in the coming years, and it wouldn’t be a surprise to see cost-mitigation programs like GoodRx limited because they depend on coupons, rebates, and discounts for people paying cash for drugs.
There are several right ways to handle this problem, but there’s one clear wrong solution: doing nothing. Medications play a critical role in keeping people healthy and out of the hospital; 10% of all hospital admissions stem from prescription nonadherence. Saving a few dollars today by skimping on prescription benefits will result in much larger costs down the road for employers as they see hospitalization numbers increase among their associates. And as employees see their health worsen, this leads to other costs such as increased absenteeism and worse performance on the job.
What should employers do? To keep a healthy workforce, they will need to provide better ways for their employees to afford drug costs. This might mean investing in health plans that have lower prescription copays, loading up employee spending accounts with funds that can be used for prescription costs, or offering a Health Payment Account like Paytient to help employees afford their medications by paying over time, interest-free.
