What the Inflation Reduction Act Means for Health Care Companies and Consumers

On August 16, President Biden signed the Inflation Reduction Act (IRA) into law. The legislation impacted taxes, climate and health care – and notably, drug pricing in Medicare. The law will have a significant impact on the health care sector.

Legislation in Focus: Five Main Provisions

There are five main provisions that affect the health care industry and Medicare beneficiaries in this legislation.

The provision getting the most media attention provides the ability for Medicare to negotiate drug prices with manufacturers. This would impact certain (currently unnamed) high-cost, single source drugs and biologics paid for by Medicare parts B and D beginning in 2026.

The legislation implements mandatory rebates for Medicare if drug prices rise at a higher rate than inflation.

The price of insulin is capped at $35 per month for people on Medicare but does not affect those on commercial or individual insurance, nor does it apply to people on Medicaid.

A $2,000 per year cap on out-of-pocket costs for people with Medicare part D is intended to smooth costs out over a given year to provide beneficiaries with medication spending predictability month-to-month.

The last provision extends the government subsidies for insurance plans purchased on the federal marketplace that was created as part of the Affordable Care Act. This was required to extend the subsidies for an additional three years.

Why It Matters:

A federal report found 3.5 million seniors on Medicare are struggling to pay for prescription drugs and price controls for drugs covered under Medicare are intended to lower out-of-pocket costs for consumers.

While it will take time for the full impact of the legislation’s health care provisions to be felt, we can expect the health care issues – specifically drug pricing – to be discussed and debated by candidates during the upcoming midterm election. These changes also come as the health care sector is undergoing a significant transformation responding to multiple pandemics, staffing shortages and a digital revolution.

What’s Next

The 30-year fight over drug pricing is not over quite yet despite the Inflation Reduction Act becoming law. And the outcome of the new law is not a clear win or loss for either side. Ultimately, the impact of the law could potentially be influenced by a number of upcoming factors.

The biopharmaceutical industry has vowed to change the drug pricing provisions through the regulatory process and legal action, similar to what happened with the implementation of the Affordable Care Act over the last decade.

Biopharmaceutical manufacturers might take a different approach to pricing new medicines and increasing the cost of medicines over time that would help them maintain their ability to innovate.

Mid-term elections this fall – and Democrats ability to communicate that they are reducing the cost of medicine – could impact the implementation of all provisions of the new law. If Republicans gain control of the House and Senate they may wish to roll back some of the price controls they have traditionally opposed.

Fears of an economic recession may compel Congress to keep provisions that impact out-of-pocket costs to consumers, even if Republicans would have otherwise opposed some provisions.

Although the impact of the bill is still unclear, policies and implementation will solidify as events unfold in the coming months. Now it is time for stakeholders to take a fresh look at strategies and messaging as these events play out in order to shape implementation of the Inflation Reduction Act and any additional drug price control legislation.

This article is co-authored by Erin Seidler and Sara Belfry.