The Inflation Reduction Act Lowers Health Care Costs for Millions of Americans

Through the Inflation Reduction Act, President Biden is delivering on his promise to lower prescription drug costs, make health insurance more affordable, and make the economy work for working families. This law means millions of Americans across all 50 states, the United States territories, and the District of Columbia will save money from meaningful benefits like:

  • lower prescription drug prices in Medicare through price negotiation with manufacturers,
  • a yearly cap ($2,000 in 2025) on out-of-pocket prescription drug costs in Medicare, and
  • continued lower health insurance premiums through and the state-based Marketplaces.  

People with Medicare will benefit from lower prescription drug costs and a redesigned prescription drug program.

Before the Inflation Reduction Act, more than 5 million people with Medicare struggled to afford their prescription drugs. People with lower incomes and those under age 65 also are more likely to skip the medicine they need because of high costs. The Inflation Reduction Act makes changes to Medicare so that millions of people with Medicare will spend less on their prescriptions.

  • Someone with Medicare who takes insulin covered by their prescription drug plan or through a traditional pump covered under Traditional Medicare will have access to each insulin for no more than $35 for a month’s supply. That person also won’t pay a deductible for their covered insulin products. The new rules begin January 1, 2023 for insulin covered under Medicare prescription drug plans and July 1, 2023 for insulin that is used through a traditional pump covered under Traditional Medicare’s durable medical equipment benefit. This change sets a cap on insulin cost-sharing that will benefit at least 1.4 million people with Medicare.
  • Starting in 2024, people enrolled in Medicare prescription drug coverage who have higher drug costs so that they reach the catastrophic phase of Medicare drug coverage will no longer have to pay cost-sharing toward their prescription drugs in the catastrophic phase.  
  • Help affording prescription drug coverage for people with Medicare who have low incomes will be expanded starting in 2024 for certain individuals with limited resources who earn less than 150% of the federal poverty level. This change will help people enrolled in Medicare drug coverage be better able to pay their premiums and cost-sharing to fill prescriptions.
  • People with Medicare prescription drug coverage will benefit from a yearly cap ($2,000 in 2025) on what they pay out-of-pocket for prescription drugs, starting in 2025. They will also have the option to pay their prescription costs in monthly amounts spread over the year rather than all at once, beginning in 2025.

Medicare’s new ability to negotiate drug prices will mean that people with Medicare will have more access to innovative, life-saving treatments, and the costs will be lower for both them and Medicare.

Americans spend more than $1,500 per person every year on prescription drugs. Prices also tend to be far higher than in other countries. One of the main reasons for these higher drug costs is a lack of market competition. The Inflation Reduction Act increases competition, which will lower the price of prescription drugs for people with Medicare.

The requirement for Medicare to negotiate prescription drug prices encourages drug makers to create new ways to do business so they can stay competitive. This competition helps find new treatments and ways of delivering medicines. This kind of negotiation isn’t new - the Departments of Defense and Veterans Affairs and the Indian Health Service have had the ability to negotiate drug prices for their health programs for decades. With the new law, Medicare will also finally be able to negotiate drug prices directly with manufacturers, ensuring people with Medicare pay lower costs on some of the costliest prescription drugs.

In 2023, Medicare will select and announce the first 10 drugs to be negotiated. The law requires that those 10 are chosen from a list of the highest-spending, brand-name Medicare Part D drugs that don’t have competition. The negotiated Medicare drug prices for these first 10 drugs will be available starting in 2026. Medicare will choose and negotiate 15 more Part D drugs for 2027, 15 more Part B or Part D drugs for 2028, and 20 more Part B or Part D drugs for each year after that. Manufacturers that don’t follow the negotiation rules for the selected drugs will pay a tax, and will pay a penalty if they don’t fulfill other manufacturer requirements.

The Inflation Reduction Act makes Medicare stronger for current and future enrollees. It makes health care more accessible, equitable, and affordable by lowering what Medicare spends for prescription drugs and limiting increases in prices.

The law expands Medicare benefits by making program improvements that save money, so care will be more accessible and affordable without costing taxpayers extra.

  • In 2025, there will be a new Manufacturer Discount Program in Medicare. The new discount program will require drug manufacturers to pay discounts on certain brand-name drugs and other types of drugs called biologics and biosimilars, both in the initial coverage phase and in the catastrophic phase of the Medicare prescription drug benefit. In general, manufacturers must provide a 10 percent discount in the initial phase and a 20 percent discount in the catastrophic phase.
  • Government reinsurance in the catastrophic phase of Part D will decrease from 80% to 20% for most brand-name drugs, biologicals, and biosimilars and will decrease from 80% to 40% for generics beginning in 2025. Currently, Medicare pays 80% of drug spending incurred by Part D enrollees with drug spending above the catastrophic coverage threshold.
  • These and other changes realign the prescription drug program to reduce Medicare spending and to take away previous incentives for drug plans and manufacturers that led to increased drug spending.
  • Drug manufacturers will also have to pay a rebate to Medicare if they raise their drug prices at a rate that is faster than the rate of inflation.

The Inflation Reduction Act improves coverage and lowers out-of-pocket costs of recommended vaccines in Medicare, Medicaid, and the Children’s Health Insurance Program.

  • People with Medicare drug coverage will pay nothing out-of-pocket for adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), including the shingles and Tetanus-Diphtheria-Whooping Cough vaccines, starting in 2023.
  • Most adults enrolled in Medicaid or the Children’s Health Insurance Program will be guaranteed coverage of ACIP-recommended vaccines at no cost to them, beginning October 1, 2023.

Many consumers will benefit from lower health care coverage premiums through 2025 on and state-based Marketplaces because the new law extends the enhanced financial help that was put in place by the American Rescue Plan.

  • The Inflation Reduction Act extends enhanced financial help to purchase and state-based Marketplace plans, which was first made available under the American Rescue Plan.
  • Extending this help means that many consumers who have a health insurance plan through and state-based Marketplaces will continue to save money on their premiums.
  • Consumers in these plans saved an average of $800 on their premiums in 2021 as a result of the American Rescue Plan.
  • Without the Inflation Reduction Act, this help would have ended at the end of 2022. Instead, it will continue to be available through December 31, 2025. 
  • Consumers will be able to see the savings reflected in their premiums when they shop for coverage at or state-based Marketplaces during the upcoming Open Enrollment Period, which starts November 1, 2022.

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