Prescription drug price negotiation

Subtitle B of the Inflation Reduction Act addresses one of the pitfalls in the creation of Medicare Part D program which prohibited Medicare to negotiate the price of prescription drugs. This Act will allow Medicare to negotiate for the price of prescription drugs starting in 2026. This program will begin with a list of the top 10 most expensive drugs covered under Part D and will gradually expand to 20 prescription drugs in 2029.

The bill also includes reforms that are intended to reduce drug costs beginning in 2023. Drug makers will be penalized in the form of rebates to the government if the makers impose price increases that exceed general inflation. In the final version of the bill this rebate program is limited only to Medicare participants and will not apply to private group health plans.

Beginning in 2024, the bill will cap the total annual out-of-pocket costs for Medicare enrollees for Part D Low Income Subsidies and Part D Catastrophic Thresholds.

The bill also sets an annual cap of $2,000 on out-of-pocket costs for Medicare patients enrolled in drug plans beginning in 2025.

This new policy is expected to save billions of dollars of the next 10 years and may be a turning point for self-funded plans to also limit the out-of-pocket costs for prescription drugs in the future, possibly by tying reimbursement of prescription drugs to Medicare rates.

ACA subsidy extension

For the 2021 and 2022 coverage years, the American Rescue Plan Act contained subsidies for individuals who previously did not qualify for income-based subsidies to obtain help to pay their healthcare premiums. The Inflation Reduction Act, Subtitle C, contains an extension through 2025 to allow a credit to taxpayers whose household income exceeds 400% of the poverty line to obtain subsidies in obtaining health insurance.

Thirteen million Americans covered under the Affordable Care Act will see their health insurance premiums reduced by $800 if this bill passes into law and will allow more individuals to afford health care coverage.

Insulin price caps for Medicare enrollees

The most highly anticipated part of the health care portion of the Inflation Reduction Act was the cap on insulin at $35 per month or the amount equal to 25% of the negotiated price of the selected insulin product. One in five individuals with employer provided coverage spend more than $35 per month on insulin on average – much higher than the cost of insulin in other countries.

Related: Big Pharma went all in to kill drug pricing negotiations

The Senate Parliamentarian struck out the private insurance piece of this rule on procedural grounds based on the "Byrd" rule, which requires that provisions in reconciliation bills have a budgetary effect on the Federal budget. Due to this rule, the cap on insulin is now limited to Medicare beneficiaries and will not have the widespread affect that was originally intended.

It is possible that this price cap may lower insulin costs to the individual consumer, but these costs are being passed on to the Medicare plans themselves, which could result in higher costs to Medicare participants in the future. However, it is possible this measure will end up lowering costs in the long run, by allowing participants to afford regular insulin and avoid potential hospital services and emergency room visits for non-adherence to medications.