Reducing health care costs for consumers has long been a challenge for government agencies. The United States spends $4.1 trillion annually on healthcare expenditures and lowering these costs requires coordinated efforts by multiple parties.
To combat rising inflation rates and reduce the burden on consumers, the Biden Administration enacted the Inflation Reduction Act. The bill makes investments in energy, manufacturing, and transportation while redefining how health plans drive change within the economy. Medicare Advantage Part D, Affordable Care Act (ACA), Medicaid and Children’s Health Insurance Program (CHIP) plans will need to adapt their quality and financial strategies to the bill’s new regulations. Understanding how these new regulations will impact health plan operations and spending is vital for safeguarding long-term success.
What is the Inflation Reduction Act?
Enacted on August 16, 2022, the Inflation Reduction Act is a comprehensive bill that guides federal spending towards multiple initiatives to reduce the deficit and encourage economic progress for consumers. Composed of grants, loans, rebates, incentives and other investments, the bill is designed to improve the nation’s financial competitiveness, foster innovation and improve productivity across several industries. The bill also expands regulations and compliance requirements within the health insurance sector to help members afford prescription medication, vaccinations and premiums. These funds and regulations will be coordinated alongside state, local and Tribal government agencies to ensure resources are used appropriately.
What is Covered in the Inflation Reduction Act?
The Inflation Reduction Act directs funds towards several economic initiatives that include:
- Upgrading the United States’ energy infrastructure
- Combatting climate change and reducing carbon emissions
- Encouraging domestic manufacturing
- Reforming tax credits and incentives for electric vehicles and batteries
- Lowering healthcare costs
For health plans, the most pressing provisions included in the bill include:
- Repealing the drug rebate rule
- Allowing Medicare to negotiate drug prices with manufacturers
- Placing an annual inflation cap on prescription drugs
- Expanding Affordable Care Act subsidies for three years
When Will the Bill Go Into Effect?
Most provisions within the Inflation Reduction Act went into effect on January 1, 2023. However, several healthcare updates took effect in 2022:
- Members under the ACA were provided with low-cost premiums during the Open Enrollment in 2022.
- The repeal of the drug rebate rule went into effect on October 1, 2022, and marked the start of the 12-month period where drug manufacturers must pay Medicare rebates if drug prices exceed inflation rates.
The Centers for Medicare & Medicaid Services (CMS) Inflation Reduction Act timeline breaks down which provisions will go into effect from 2023 to 2029.
How Will the Inflation Reduction Act Impact Health Plans?
Capping drug costs is the driving consumer benefit of the Inflation Reduction Act, but it will have widespread impact on health plans in all markets. The bill changes how drug prices are negotiated, when members will receive $0 cost-sharing and what benefits they will receive. Pay attention to the following revisions.
The Medicare Prescription Drug Inflation Rebate Program
The bill enables CMS to reduce drug prices for consumers through the Medicare Prescription Drug Inflation Rebate Program aims to reduce drug prices for consumers. This program requires drug manufacturers to pay a rebate to CMS if the prices of their drugs are higher than the rate of inflation, including for certain drugs and biologicals covered by Part B and Part D cost-sharing.
This program presents two scenarios. First, manufacturers may choose to absorb the cost of the rebate and keep drug prices at their normal level. In this case, health plans and members will continue to pay the same prices through cost-sharing. Second, if the manufacturer does reduce drug prices below the inflation rate, then both health plans and members will be charged a lower price. For plans with members who use multiple prescription drugs, this scenario could significantly reduce costs.
Prescription Drug Pricing Negotiations
CMS may now negotiate drug prices for certain drugs covered under Medicare Part B and Part D to reduce costs for members. This was previously prevented through the noninterference clause, which barred the federal government from interfering in negotiations between drug manufacturers and Part D plans. The new law amends this rule to give CMS negotiating power for single-source brand-name drugs that do not have a generic counterpart in the market.
The market could adapt to this provision in several ways, including reducing the overall cost of expenses prescription medications, expanding production of generic counterparts or changes in coverage for specific drugs. Expanding or reducing which drugs a Part D plan covers can have significant impacts on Medicare bids, member experiences and Star Ratings performance. Plans should carefully review the financial impact of negotiated drug prices to safeguard long-term success.
There is also potential for any changes to drug prices to spill over into the other market and impact cost-sharing for Commercial, Medicaid and ACA plans. CMS must publicly share negotiated drug prices starting on September 1, 2024, and plans may be able to use this data to negotiate better rates.
Yearly Cap on Out-of-Pocket Costs
Medicare Part D members are eligible for catastrophic coverage, which goes into effect once a member has paid a specific amount of money in out-of-pocket expenses for prescription drugs. In 2023, this limit is $7,400. Starting in 2025, members will have a $2,000 annual cap on out-of-pocket expenses for prescription drugs. Once they reach this limit, they cannot be charged any coinsurance or co-payments for the remainder of the year. This cap on expenses will require Medicare Part D plans to absorb the additional costs for members with chronic conditions.
Cost-Sharing Limits for Insulin and Vaccines
Members with diabetes will now have a cost-sharing limit of $35 for insulin each month. Members will also have no cost for vaccines covered by Medicare Part D. This reduction in costs to members may have a powerful impact on medication adherence and immunization rates but will come at a higher price tag for plans.
Expanded Coverage for Vaccinations
Members in Medicare, Medicaid and CHIP are eligible to receive full coverage for vaccines recommended by the Advisory Committee on Immunization Practices. For Medicare Part D members, this coverage went into effect on January 1, 2023. For Medicaid and CHIP members, this coverage will go live on October 1, 2023.
Lower Healthcare Coverage Premiums for ACA Members
Additional federal funding has been distributed to health plans provided under the ACA to reduce premiums for low-income members who purchase plans through HealthCare.gov or state-based marketplaces.
Adapting to Emerging Regulatory Challenges
The Inflation Reduction Act is just one of many new regulatory changes that will reshape the future of plan performance. Health plans in all markets should pay close attention to the language of the bill and the financial impact these provisions will have on daily operations.
Healthmine’s Expert Advisory Services team has a wealth of experience guiding health plans through eras of significant regulatory change. If you have questions about how the Inflation Reduction Act will impact your plan’s quality, financial or organizational goals, reach out to us at engage@healthmine.com.