Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act (IRA) was enacted.[1] That law contained a number of healthcare reform provisions. Those included extending the period for enhanced Marketplace subsidies under the Affordable Care Act; [2] authorizing Medicare drug price negotiations; requiring rebates from pharmaceutical companies for Medicare price increases above the rate of inflation; and a number of other Medicare Part D changes.
Extending the period for enhanced premium subsidies: The ACA provided financial subsidies of premium assistance to those who enrolled in health insurance plans under the ACA. Those subsidies were available to individuals and families earning less than 400% of the Federal Poverty Level (currently, $52,000/year for individuals, $106,000/year for families).[3] [4] In 2021, the American Rescue Plan Act of 2021 (ARP) [5] was enacted which enhanced the financial assistance of the ACA to help persons enrolled in ACA insurance plans. It did this in two ways.
- The ARP eliminated the “premium subsidy cliff” by expanding the 400% FPL limitation. Under the ARP, those whose income exceeds 400% FPL are eligible for premium tax credits if the costs of premiums exceed 8.5% of household income. [6]
- The ARP also increased existing subsidies. Under the ACA, those with incomes of under 133% FPL were required to contribute 2% of their income toward premiums. This increased to 9.78% of their income for those making 300%-400% FPL. The ARP reduced these premium contribution percentages for all FPL brackets. Under the ARP, there is no contribution requirement at 100%-150% FPL, and contributions are capped at 8.5% of income for 150%-400% FPL. [7]
The enhanced premium subsidies in the ARP were scheduled to expire on December 31, 2022. The IRA extended these enhanced premium subsidies for three years to December 31, 2025. [8]
Medicare Drug Price Negotiations: Prior to the IRA, Medicare was not allowed to negotiate Part B and Part D drug prices with pharmaceutical companies. The IRA provides the Secretary of Health & Human Services (HSS) with the authority to negotiate a number of drug prices, and requires HSS to do so. [9] This negotiation is limited to costly single-priced drugs. The number of drugs and prices which can be negotiated is phased in from 2026-2029 according to the following schedule:
2026: 10 Medicare Part D drugs
2027: 15 Medicare Part D drugs
2028: 15 Medicare Part B and Part D drugs
2029: 20 Medicare Part B and Part D drugs
TOTAL: 60 Medicare drugs
Pharmaceutical companies are required to negotiate and are assessed a 65%-95% penalty if they refuse to do so. Once a price is negotiated, that becomes a ceiling for which the drug cannot rise above. [10]
Required rebates for price increases above inflation in Parts B and Part D: Under the IRA, only drug costs under Medicare can be capped. The original bill [11] contained language capping drug prices in both Medicare and in the private market. However, the Senate Parliamentarian ruled that capping and providing rebates for drug prices could not apply to private market sales under the Reconciliation rules of the Senate. [12] Thus the final-enacted version of the IRA only applies to drugs under Medicare. Under that provision, if drug companies raise Medicare prices faster than the rate of inflation, they must pay rebates back to the government for the difference. [13]
Other Medicare Part D Changes: The IRA makes a number of other changes to what persons must pay under Medicare for drugs. These include: (1) beginning in 2025, capping out-of-pocket drug costs at $2,000 per year; [14] (2) beginning in 2023, capping patients’ insulin costs at $35 per month; [15] (3) providing access to free vaccines; [16] and (4) from 2024-2029, limiting premium growth in Part D to no more than 6% per year. [17]
Jonathan P. Siner, Attorney
Malecki Brooks Law Group, LLC
[1] IRA, Pub. L. 117-169.
[2] ACA. The Patient Protection Affordable Care Act of 2010 (ACA), Pub.L. No. 111-148, 124 Stat. 119-1045, 42 U.S.C.A. §§300gg et seq., as amended by the Health Care and Education Reconciliation Act of 2010, P.L. No. 111-152.
[3] ACA, id.
[4] Congress Poised to Extend Enhanced Marketplace Subsidies Through 2025, Katie Keith (Health Affairs Forefront – Following the ACA, 8-9-22).
[5] ARP, Pub. L. 117-2.
[6] Keith, Id.
[7] Id.
[8] IRA, §12,001.
[9] IRA, §11,001.
[10] IRA, §11,003.
[11] HR 5376 (117th Cong.)
[12] Understanding the Democrats’ Drug Pricing Package, Rachel Sachs (Health Affairs Forefront, 8-10-22).
[13] IRA, §§11,101, 11,102.
[14] IRA, §11,201.
[15] IRA, §11,406.
[16] IRA, §§11,401, 11,405.
[17] IRA, §11,201.