In this post, I run down the major provisions of the Inflation Reduction Act of 2022 (IRA2022) and highlight how the provisions in the legislation will change what you pay for under-65 healthcare and for prescription drugs under Medicare Part D coverage. Most of the source information for this article comes from the exhaustive article published by kff.org and linked at the end of this post. Here, I have simplified some of the content and presented it in chronological order as to when the provisions will take effect.
2023 Under-65 (ACA Plans available through Healthcare.gov)
In 2021, the American Rescue Plan removed upper income limit on subsidies to ACA plans and increased financial assistance to those already eligible. As a result, 14.5 million Americans signed up of which 13 million benefit from subsidies. IRA2022 continues the subsidies initially granted in the American Rescue Plan through 2025 thus preventing premium hikes many would have faced if the American Rescue Plan expired.
Medicare
Drug features of IRA2022 will affect you only if you get your drugs through a Medicare Part D drug plan (PDP), either a stand-alone PDP or a Medicare Advantage (Part C) plan that includes Part D drug coverage. What follows are the changes presented chronologically according to the year in which they will take effect.
2023 Medicare: Insulin copayment limits
Limits copayments for insulin to $35/month for all Part D plans and also applies to insulins provided under Medicare Part B by DME providers (e.g., insulin pump, etc.). A few years back the Senior Savings Model made a similar provision, but it was optional for carriers to implement the Senior Savings Model in their plans. Some plans did, some plans did not. IRA2022 makes this provision mandatory across the board for all Part D drug plans.
2023 Medicare: Drug cost inflation protection
If the price of most drugs covered by Medicare increases more than inflation, the manufacturer must pay the difference back to the Medicare Insurance Trust Fund. The look-back for inflation is two years, so the 2023 cost of a drug will be compared to its 2021 cost for this provision.
2023 Medicare: Eliminates cost sharing for adult vaccines covered under Part D
Up until now, only certain vaccines were covered 100% by Medicare, for example: influenza (flu shot), pneumococcal (pneumonia shot). Other popular vaccines like the Zoster vaccine for shingles were covered under Part D but usually on tier 3 of the plan requiring the member to pay a high copay plus in some cases a large drug coverage deductible. IRA2022 will have Medicare covering all vaccines recommended by the CDC 100%. A list of these vaccines is available here.
2024 Medicare: Eliminates 5% coinsurance in catastrophic phase of Part D plans
If you don't take many prescription drugs or if all your drugs are generics, you may not even know that your Medicare drug plan has a catastrophic phase. And if that's true, be happy about that. Plan members enter the catastrophic phase once the combination of what the plan pays, what the member pays and any manufacturer discounts reaches $7,050 in 2022. After that, in the catastrophic phase you still must pay 5% coinsurance. So, for a drug that costs $5,000/month (not uncommon) you're still paying $250 month for the remainder of the calendar year until the plan resets for the next year. IRA2022 eliminates the 5% coinsurance in the catastrophic coverage phase. So, once a member enters the catastrophic coverage phase, they have no further out-of-pocket expenses for drugs. This essentially achieves an annual maximum out-of-pocket of $3,250 in drug costs for members who reach the catastrophic coverage phase during the year. A deep dive on how the phases currently work is available here.
2024 Medicare: Expands income eligibility for Low-Income Subsidy (LIS)
LIS is a federal program that helps with drug costs for members that meet income and asset eligibility requirements. Right now, members whose income is up to 135% of the Federal Poverty Level (FPL) qualify for full LIS benefits. Partial benefits are available to those whose income is between 135% - 150% of the FPL. In 2024, full benefits will be expanded to members whose income is 135% - 150% of the FPL. Asset limits (liquid cash, for example) also apply. Check your eligibility and apply for LIS here.
2024-2029 Medicare: Limit on Part D monthly premium increases
Part D drug plan sponsors will be limited to 6% per year plan premium increases for the same named plan. Are there ways around this? Of course! A plan sponsor can terminate the plan you're in for the next year, then roll you into a differently named plan with a new premium that would not be protected by the 6% premium increase limit. If you read the notices your PDP plan sponsor sends you, you'll be able to see if this is happening with your plan, and if it is, just call me during Medicare Advantage AEP (annual election period) and we'll shop your drug plan again for the next year.
2025 Medicare: $2,000 maximum annual out-of-pocket drug cost cap
Expanding on the 2024 elimination of 5% coinsurance in the catastrophic coverage phase of Part D plans, in 2025 maximum annual out-of-pocket drug costs will be capped at $2,000.
2026-2029 Medicare: Price negotiation for certain high-cost drugs
This provision of IRA2022 is being hailed as a breakthrough for Medicare. Up until now, it has been illegal for Medicare to negotiate drugs costs with manufacturers. Starting in 2026, the Secretary of HHS will select a list of 10 Medicare Part D drugs for price negotiation. In 2027, 15 more drugs will be added to the list; in 2028, 15 more will be drugs added to the list; in 2029, 20 more drugs will be added to the list but now including not only Part D drugs but also Part B drugs (typically infused drugs that get administered in a medical office setting). Drugs to be chosen for negotiation will include single-source branded drugs that have no generic equivalent. In this context, the word "negotiation" is being used somewhat loosely. If a drug manufacturer chooses not to negotiate, they will be levied a hefty excise tax that increases every year and possibly a civil penalty. Again, the penalties/taxes associated with non-negotiation will get paid into the Medicare Insurance Trust Fund.
Timeline for negotiated drug costs
September 2023: List of first 10 drugs to be published
October 2023: Negotiations begin
September 2024: Maximum fair prices published
January 1, 2026: Negotiated prices take effect
Conclusion, Credits and Disclaimer
I hope that this post sheds a little light on the welcome, upcoming changes to your healthcare costs. As always, please contact me with any questions.
Source article and graphic credit to kff.org. Source article available here. At best, this is a high-level overview of the provisions of IRA2022 containing what I believe to be important to my clients, specifically those benefitting from Medicare and ACA coverage. If there are any discrepancies between what appears here and the actual legislation, the actual legislation is the final word.