Three ways the Inflation Reduction Act may impact health care

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 09/14/22


In August Congress passed the Inflation Reduction Act which introduced new corporate taxes and other revenue raisers to offset spending for health care and climate-related initiatives. The legislation passed Congress through the budget reconciliation process requiring only a simple majority vote in the Senate.

Here are three ways the health care-related provisions may impact individuals:

1. Lower prescription drug prices – eventually

The new law seeks to address the high cost of prescription medication through government negotiation with pharmaceutical companies, caps on out-of-pocket spending, and increased subsidies for lower-income households.
  • Beginning in 2026, and continuing through 2030, the Department of Health and Human Services (HHS) will negotiate prices for higher-cost drugs offered to beneficiaries enrolled in Medicare
  • Out-of-pocket spending for prescription drugs under Medicare Part B is capped at $2,000 beginning in 2025. According to the Kaiser Family Foundation (KFF), over one million Medicare beneficiaries incur more than $2,000 in out-of-pocket costs annually for prescription drugs
  • Insulin costs for Medicare beneficiaries are capped at a $35 co-payment per month (beginning in 2023)

2. Enhanced subsidies to purchase health insurance

Signed into law in 2010, the Affordable Care Act (ACA) introduced subsidies to help consumers purchase health insurance on the newly established exchanges. During the pandemic crisis, the American Rescue Plan temporarily enhanced these health insurance premium subsidies. While these temporary increases were due to expire at the end of 2022, the Inflation Reduction Act extends them through the end of 2025.

For example, when premium subsidies were originally introduced under the ACA exchanges, they were limited to those with income below 400% of the federal poverty level (FPL). For 2022, 400% of the FPL is equal to $54,360 for individuals and $111,000 for a family of four. Under the enhanced subsidy version, eligibility extends to those with ACA premium costs exceeding 8.5% of their income. Under this provision, some consumers may receive a subsidy to purchase health insurance on the ACA exchanges even if their income exceeds 400% of the FPL. According to the KFF, individuals with incomes between 400% to 600% FPL who receive premium tax credits pay an average of $3,510 in annual premiums after receiving the enhanced subsidies. If these enhanced subsidies expired as originally slated at the end of 2022, their premiums would more than double, on average.

3. No-cost vaccines for those on Medicare

While we have become accustomed to free vaccines such as those for Covid-19 or the flu virus, individuals may face out-of-pocket costs on other vaccines. The legislation eliminates cost-sharing for adult vaccines under Medicare Part D.

Looking ahead

Rising health care expenses are a concern among workers saving for retirement as well as retirees. According to HealthView Services, the average healthy couple retiring in 2021 is projected to experience average annual cost inflation of 5.9% and spend 68% of Social Security benefits on health care expenses. Planning for health care costs in retirement must be a key factor to consider as part of overall retirement planning.

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