Inflation Reduction Act: 6 Health Care Provisions Plan Sponsors Should Know About

The U.S. House of Representatives is expected to consider a bill today that will likely reduce the cost of drugs for some Medicare recipients through a new cap on out-of-pocket costs and a provision that would allow the U.S. Department of Health and Human Services (HHS) to directly negotiate the price of some high-cost drugs with drug manufacturers. Called the Inflation Reduction Act (H.R. 5376), the bill contains several health care-related provisions, some of which may impact employers and plan sponsors that provide retiree health plans.

On August 7, 2022, the Senate passed along party lines an amended version of the bill that had been passed by the House in November 2021. It is anticipated that the House will take up this amended bill today and will pass it. If so, it will then go to President Joe Biden for his signature. While many of the bill’s provisions relate to climate change and taxation, a substantial number of provisions relate to health care. Many of these provisions had been included, in some form, in previous bills that had not progressed.

Prescription Drugs

For several years, prescription drug price management has been discussed in the executive branch and in Congress and has been included in federal bills that did not pass. The Act contains several provisions related to Medicare prescription drug pricing.

  • Drug Price Negotiation Program – Despite the existence of the Medicare Part D program that provides covered individuals with reimbursement for prescription drugs, HHS has not been able to directly negotiate prescription drug prices with drug manufacturers, due to provisions in the 2003 law that created the Part D program. If passed, the Act would establish a new Drug Price Negotiation Program within the purview of HHS. Beginning in 2026, HHS will negotiate pricing for ten Medicare Part D drugs, including high-priced drugs without a generic or biosimilar equivalent. In 2027, HHS will negotiate for 15 Part D drugs. In 2028, the Department will negotiate for 15 Part B or Part D drugs. For 2029 and beyond, it will negotiate for 20 Part B or Part D drugs.
  • Out-of-pocket costs – Currently, there is no cap on out-of-pocket costs for those enrolled in the Medicare Part D program. Upon reaching a “catastrophic” out-of-pocket amount ($7,050 in 2022 and $7,400 in 2023), individuals start paying a 5% coinsurance amount per prescription. Beginning in 2024, that 5% coinsurance requirement will be eliminated so that individuals will not pay costs beyond the catastrophic threshold. And, beginning in 2025, out-of-pocket costs will be limited to $2,000.
  • Insulin – Beginning in 2023, there will be a $35 monthly cap on the cost for insulin through the Part D program. This $35 cap will remain through 2025. For 2026 and beyond, the monthly cap will be the lesser of $35, the negotiated Medicare price or the “maximum fair price.”
  • Vaccines – Beginning in 2023, there will be no cost for vaccines through the Part D program.
  • Rebates – Beginning in 2023, drug manufacturers that increase their prices for Part B and Part D drugs at a percentage that is higher than the inflation rate will need to pay rebates to Medicare equal to the amount of the increase above the inflation rate. A similar rebate is already in place for the Medicaid program.

Marketplace Subsidies

The American Rescue Plan Act provided enhanced tax credits (a.k.a. subsidies) for health coverage purchased through the marketplace, for 2021 and 2022. These expanded tax credits are set to expire January 1, 2023. The Act will extend the expanded tax credits through 2025; the new sunset date is January 1, 2026.

Provisions Not Included

Despite discussion, the following provisions were not included in the Senate-passed bill:

  • Adding dental, vision and hearing benefits coverage through Medicare
  • Medicaid expansion
  • Monthly insulin cost cap for individuals with employer-provided coverage or private health insurance
  • Rebates tied to prescription drug inflation price increases available for employer-provided coverage and private health insurance.

The last two items were not expanded outside of Medicare since the Senate took up the bill under the budget reconciliation process. While that process allows bills to pass the Senate with a simple majority, rather than needing 60 votes in favor (out of 100 possible), bill provisions must impact federal revenues or spending. Expanding the insulin cap and rebates to private insurance and employer-sponsored plans would not fit these parameters.

Impact on Employers

While the prescription drug provisions of the law are tied only to Medicare Parts B and D, employers and plan sponsors that provide retiree health care benefits, especially through employer group waiver plans (EGWPs), will want to be familiar with this legislation and its impact. They may wish to discuss changes with their advisors to see how their plans may be affected.  

Stay updated on this and other legislation through the Foundation’s U.S. Legislative Tracker.

Developed by International Foundation staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.

Julie Stich, CEBS
Vice President, Content, at the International Foundation

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