Thursday, August 11, 2022
Understanding the Health Care
Provisions in the
Inflation Reduction Act
Tricia Newman
Senior Vice President & Executive Director of
the Program on Medicare Policy
Moderator & Presenters
Cynthia Cox
Vice President & Director for the
Program on the ACA
Larry Levitt
Executive Vice President for
Health Policy
Krutika Amin
Associate Director for the Program
on the ACA
Juliette Cubanski
Deputy Director of the Program on
Medicare Policy
Mollyann Brodie
Executive Vice President &
Executive Director of Public Opinion
and Survey Research Program
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Americans Are Concerned
About the Cost of Prescription Drugs
SOURCE: KFF, “Public Opinion on Prescription Drugs and Their Prices,” April 2022.
83% of adults think the
cost of prescription
drugs is unreasonable
83%
29% say in the last year,
they have not taken
prescription medicines
as directed because of
costs
26% of adults say it is
very difficult for them
to afford to pay for their
prescription drugs
29%
26%
➔ For the first time, requires the federal government to negotiate prices for some of
the highest-spending drugs covered under Medicare
➔ Requires drug companies to pay rebates if prices rise faster than inflation for
drugs used by Medicare beneficiaries
➔ Eliminates 5% coinsurance for catastrophic coverage in Medicare Part D in 2024,
adds a $2,000 cap on Part D out-of-pocket spending in 2025, and limits annual
increases in Part D premiums for 2024-2030
➔ Limits monthly cost sharing for insulin products to $35 for people with Medicare
➔ Expands eligibility for Medicare Part D Low-Income Subsidy full benefits
➔ Eliminates cost sharing for adult vaccines covered under Medicare Part D and
improves access to adult vaccines under Medicaid and CHIP
➔ Further delays implementation of the Trump Administration’s drug rebate rule
Prescription Drug Provisions in the Inflation Reduction Act*
NOTE: *Based on the Senate-passed legislation.
Implementation Timeline of the Prescription Drug Provisions in
the Inflation Reduction Act
Implements negotiated prices for certain high-cost drugs:
20 Medicare
Part B and
Part D drugs
Adds $2,000
out-of-pocket
cap in Part D
and other drug
benefit changes
2024-2030: Limits Medicare Part D premium growth to no more than 6% per year
2023 2024 2025 2029202820272026
15 Medicare
Part B and
Part D drugs
15 Medicare
Part D drugs
10 Medicare
Part D drugs
Eliminates 5%
coinsurance
for Part D
catastrophic
coverage
Requires drug
companies to
pay rebates if
drug prices rise
faster than
inflation
Further delays
implementation
of the Trump
Administration’s
drug rebate rule
to 2032
Expands
income eligibility
for full benefits
for Part D
Low-Income
Subsidies up to
150% FPL
Reduces costs
and improves
coverage for
adult vaccines in
Medicare Part D,
Medicaid & CHIP
Limits insulin
copays to
$35/month in
Part D
Requiring the Federal Government to Negotiate Prices for Some
High-Cost Drugs Covered by Medicare
Which drugs qualify?
How many drugs qualify?
What is the “maximum fair
price”?
High-spending brands and biologics without generic or biosimilar equivalents and
9+ years (small-molecule drugs) or 13+ years (biologicals) from FDA approval (with
some exceptions)
- 10 Part D drugs in 2026; 15 Part D drugs in 2027; 15 Part D and Part B drugs in
2028; 20 Part D and Part B drugs in 2029 & later years
The lowest of the Part D enrollment-weighted negotiated price, the Part B
average sales price, or a % of the drug’s non-federal average manufacturer price:
- 75%: 9 years but <12 years beyond approval
- 65%: 12 years but <16 years beyond approval
- 40%: 16+ years beyond approval
What are the penalties for
non-compliance?
- Excise tax for not negotiating, starting at 65% of a drug’s prior year sales,
increasing by 10% every quarter up to 95%; tax suspended if manufacturers choose
to have their drugs no longer covered by Medicare or Medicaid
- Civil monetary penalty for not offering negotiated price of up to 10x difference
between price charged and negotiated price
February 1,
2025
February 28,
2025
November 1,
2025
November 30,
2025
2027
Medicare Drug Price Negotiation Timeline for 2026 & 2027
September 1,
2023
October 1,
2023
August 1,
2024
September 1,
2024
2026
Drugs selected
for negotiation
published
Negotiation
process begins
between HHS
Secretary
and drug
manufacturers
Negotiation
process ends
Maximum fair
prices would be
published by
Negotiated
prices take effect
Requires Drug Manufacturers to Pay Rebates For Drug Price
Increases Above Inflation
▪ Requires drug manufacturers to pay a rebate if drug prices increase faster than
the rate of inflation (CPI-U) for:
▪ Single-source drugs and biologicals covered under Medicare Part B
▪ All covered drugs under Medicare Part D except those where average annual cost is <$100
▪ 2021 is the base year for measuring cumulative price changes relative to inflation
▪ The rebate amount is based on units sold in Medicare multiplied by the amount that a drug’s price
in a given year exceeds the inflation-adjusted price
▪ Price changes are measured based on the average sales price (for Part B drugs) or the average
manufacturer price (for Part D); these measures include prices charged in the commercial market
▪ Rebates paid by manufacturers would be deposited in the Medicare Supplementary Medical
Insurance (SMI) trust fund
▪ Manufacturers that do not pay the required rebate would face a penalty of at least 125% of the
original rebate amount
Changes would lower beneficiary spending, reduce Medicare’s liability for high drug costs, and
increase Part D plan and manufacturer liability for high drug costs
Capping Medicare Part D Out-of-Pocket Spending and
Other Part D Benefit Changes
Beneficiaries Medicare Part D Plans Drug Companies
• Eliminates 5%
coinsurance for
catastrophic coverage
in 2024
• Caps out-of-pocket
drug spending at
$2,000 beginning in
2025
• Allows spreading out of
out-of-pocket costs
over the year
• Limits premium growth
to no more than 6%
per year for 2024-2030
• Lowers share of costs
above the out-of-
pocket spending cap
(“reinsurance”)
• Increases share of
costs above the out-of-
pocket spending cap
• Modifies share of costs
below the out-of-pocket
spending cap
• Requires a price
discount on brand-
name drugs above the
out-of-pocket spending
cap
• Modifies the price
discount on brands
below the out-of-pocket
spending cap
100%
NOTE: OOP is out-of-pocket. The out-of-pocket spending threshold will be $7,400 in 2023 and is projected to be $7,750 in 2024 and $8,100 in 2025, including
what beneficiaries pay directly out of pocket and the value of the manufacturer discount on brand-name drugs in the coverage gap phase. These amounts
translate to out-of-pocket spending of approximately $3,100, $3,250, and $3,400 (based on brand-name drug use only).
Changes to Medicare Part D for Brand-Name Drug Costs
75%
25%
5%
70%
25%
15%
80%
Catastrophic
coverage
Coverage
gap
Initial
coverage
Deductible
Share of brand-name drug costs paid by: Enrollees Part D Plans Drug manufacturers Medicare
Current law: 2023
OOP
spending
threshold
5% enrollee
~$3,250
100%
65%
10%
25%
60%
20%
20%
Catastrophic
coverage
Initial
coverage
Deductible
2024
OOP
spending
cap
0% enrollee
$2,000
100%
75%
25%
5%
70%
25%
20%
80%
0% enrollee
2025
~$3,100
Inflation Reduction Act
▪ Beginning in 2023, limits copayments to $35 per month per prescription for
covered insulin products in Medicare Part D plans and for insulin furnished
through durable medical equipment under Medicare Part B, with no
deductible
▪ For 2026 and beyond, limits monthly Part D copayments for insulin to the
lesser of:
‒ $35
‒ 25% of the maximum fair price (in cases where the insulin product has
been selected for negotiation)
‒ 25% of the negotiated price in Part D plans
Limits Monthly Copayments for Insulin in Medicare
Expands Eligibility for Full Benefits under the Part D Low-Income Subsidy (LIS) Program
▪ The LIS program helps Medicare beneficiaries with their Part D premiums, deductibles, and cost
sharing. Beneficiaries qualify for full or partial benefits depending on their income and resources:
▪ Full benefits: income up to 135% FPL & resources up to $9,900 individual, $15,600 couple in 2022*
▪ Partial benefits: income between 135-150% FPL & resources up to $15,510 individual, $30,950 couple in 2022*
▪ The Inflation Reduction Act expands eligibility for full LIS benefits to individuals with incomes
between 135-150% of FPL and resources at or below the limits for partial LIS benefits
Improves Coverage of Adult Vaccines
▪ Eliminates cost sharing for adult vaccines covered under Medicare Part D that are recommended
by the Advisory Committee on Immunization Practices (ACIP), such as for shingles
▪ Requires state Medicaid programs to cover all approved adult vaccines recommended by ACIP
and vaccine administration, without cost sharing
Expands Eligibility for Part D Full Low-Income Subsidy Benefits
and Improves Coverage of Adult Vaccines
NOTE: *Includes a $1,500 per person allowance for funeral/burial expenses.
2019
Jan
Trump Administration
issued proposed rule to
ban rebates in Part D
2020 2021
July
Trump Administration
issued executive order
to finalize rebate rule
Nov
Trump Administration
issued final rule to
ban rebates in Part D
July
Trump Administration
withdrew proposed
rebate rule
Mar
Biden Administration
delayed implementation
of rebate rule to 2023
Nov
Infrastructure Investment
and Jobs Act delays
implementation from
2023 until 2026
Delays Implementation of the Trump Administration’s Rebate Rule
2022
June
Bipartisan Safer Communities
Act delays implementation
from 2026 to 2027
July
Inflation Reduction Act
further delays rebate rule
implementation to 2032
What is the Rebate Rule?
It would eliminate rebates negotiated between drug manufacturers and pharmacy benefit managers (PBMs) or health plan
sponsors in Medicare Part D by removing the safe harbor protection currently extended to these rebate arrangements under
the federal anti-kickback statute. The rule was estimated to result in higher Medicare spending and higher Part D premiums.
1.3 million
Medicare Part D
enrollees without low-
income subsidies had
spending above
the catastrophic
coverage threshold
in 2020
NOTE: Estimates of beneficiaries potentially affected by these provisions are likely to be conservative because they are based on 2020 data and do
not reflect increases in drug spending from 2020 to the year of implementation, growth in the population, or any increase in drug use and spending
attributable to reduced financial barriers.
SOURCE: KFF, “How Would the Prescription Drug Provisions in the Senate Reconciliation Proposal Affect Medicare Beneficiaries?” July 2022.
Number of Medicare Beneficiaries Potentially Affected by
Selected Provisions in the Inflation Reduction Act
1.4 million
Medicare Part D
enrollees without low-
income subsidies had
annual out-of-pocket
drug spending of
$2,000 or more in
2020
4.1 million
Medicare Part D
enrollees received a
vaccine covered
under Part D in 2020
0.4 million
Medicare Part D
enrollees received
partial benefits under
the Low-Income
Subsidy program in
2020
Eliminating the 5%
coinsurance
requirement for
Medicare Part D
catastrophic coverage
Capping out-of-pocket
drug costs in Medicare
Part D at $2,000
Eliminating cost
sharing for adult
vaccines covered
under Medicare Part D
Expanding eligibility for
full benefits for
Medicare Part D
Low-Income Subsidies
up to 150% FPL
A Tale in Three Acts
The Affordable Care Act (ACA), 2010:
‒ Created health insurance Marketplaces where people can get subsidies
‒ Subsidies originally only available to people with incomes between 1 and 4 times the poverty level
(roughly $50k for an individual or $100k for a family of four)
‒ Many people making over 4 times poverty were priced out and subject to steep premium increases
The American Rescue Plan Act (ARPA), 2021:
‒ Removed the upper income limit on subsidies
‒ Increased the amount of financial assistance for people who were already eligible
‒ A record 14.5 million people signed up for coverage, including 13 million with subsidies
The Inflation Reduction Act (IRA), 2022:
‒ If passed, will continue the subsidies in the American Rescue Plan Act without interruption for
additional 3 years (through 2025)
‒ Prevents hikes in premium payments millions of enrollees would have faced if ARPA expired
The Inflation Reduction Act would continue eligibility for
premium assistance for middle-income enrollees
The Inflation Reduction Act would continue to lower
Marketplace premium payments across the board
If the Inflation Reduction Act did not pass…
• American Rescue Plan Act subsidies expire
• Nearly all 13 million subsidized enrollees
experience a hike in premium payment
• Average premium payment 53% higher, over
$700 increase annually
• The “subsidy cliff” would return
• Marketplace shoppers find out about these
increased in late October/early November
• Premium payments effective January 1, 2023
• Some would be hit by “double whammy”
If the Inflation
Reduction Act did not
pass, premium
increases would vary
by state
These enhanced subsidies come at a cost
‒ For permanently extending the American Rescue Plan Act subsidies, the Congressional Budget Office
(CBO) estimated:
• Cost of about $25 billion per year based on 10-year estimate
1
• Includes both increased federal spending and changes in revenue
• Includes assumptions on changes in enrollment, premiums, and risk pool
‒ How much it actually costs will depend on:
• How many people will sign up?
‒ CBO expects 4.8 million more Marketplace enrollees than baseline
‒ In 2022, 14.5 million signed up for Marketplace coverage (net 2.5 million increase from 2021)
• How much premium costs rise?
‒ For 2023, rate increases in 13 states and DC about 10%, based on early analysis
2
1. CBO Letter to Congress. July 21, 2022. https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf
2. An early look at what is driving health costs in 2023 ACA markets. July 18, 2022. https://www.healthsystemtracker.org/brief/an-early-look-at-what-is-
driving-health-costs-in-2023-aca-markets/ Peterson-KFF Health System Tracker.
