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How Does the Inflation Reduction Act Impact Healthcare? A Guide During Open Enrollment Season

November 01, 2022
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With the holiday season fast approaching now’s the time to pause and consider something else that takes place this time of year: open enrollment. Open enrollment for private and marketplace health insurance plans typically takes place in the fall but can vary by provider, while Medicare open enrollment runs from October 15 through December 7.

You might be tempted to stick with what your family is already doing, but this may be your only opportunity to make changes for the upcoming calendar year. Consider whether your plan has changed its coverage or premiums or if your health status has changed since you initially opted in. Going into the new year, is your plan still reflective of your needs and budget? Or is there an opportunity to find more suitable coverage for the new year?

As you take these questions and considerations into account, keep in mind that recent legislation may impact healthcare costs and coverage—especially for Medicare participants. It’s possible these changes, some of which will be in effect by 2023, could impact your future healthcare coverage and costs.

What’s Included in the Inflation Reduction Act?

The Inflation Reduction Act was signed into law on August 16, 2022. While the name implies an emphasis on reducing high inflation, this substantial piece of legislation touches on a wide array of sectors and industries.

Aside from healthcare, here are a few other notable impacts of the Inflation Reduction Act:

  • More resources to the IRS
  • New tax rate for corporations with $1 billion in income
  • Electric vehicle tax credits
  • Solar tax credits

How Healthcare Is Changing

One of the biggest components of the Inflation Reduction Act is the changes to healthcare costs and coverage. Here is a synopsis of what’s coming over the next few years.

Negotiate Drug Costs

Starting in 2026, the government will have the power to negotiate the price of 10 popular drugs with no generic competition under Medicare Parts B and D. That number will increase to 20 drugs by 2029. This is meant to provide Medicare users with access to more affordable prescription drugs, as well as reduce government spending by an estimated $100 billion over the next decade.3 

Drug Cost Cap for Medicare Users

Most private insurance plans offered through the workplace have some sort of out-of-pocket spending limit. Those making the switch to Medicare Part D (Medicare’s prescription drug plan) may be surprised to learn that Part D currently has no out-of-pocket cap.

In an effort to help manage spending on prescription drugs, the Inflation Reduction Act is setting an annual out-of-pocket limit for Medicare Part D users. The estimated limit will be $4,000 or less by 2024, with a goal of $2,000 or less by 2025.1

Beginning in 2023, Medicare Part D users are expected to see a cost cap of $35 a month for insulin.1 

Rebates for Drug Costs Outpacing Inflation

In 2020, it was found that the cost of half of all prescription drugs covered by Medicare Part D (about 3,343 drugs) rose in excess of inflation between 2019 and 2020. In fact, 23 out of the top 25 most-purchased drugs increased in price at a rate higher than inflation.4   

This rise in drug costs can translate to greater spending by Medicare participants. To combat this, the Inflation Reduction Act is looking to require all pharmaceutical companies to rebate Medicare participants for the difference in price if it exceeds the rate of inflation. The Health and Human Services secretary will have until July 1, 2024, to let pharmaceutical companies know about any rebates owed to Medicare for the previous calendar year.5 

ACA Marketplace Subsidies

Until now, we’ve primarily focused on changes that impact Medicare beneficiaries. But the Inflation Reduction Act is assisting those who use the federal healthcare marketplace as well, which was established by the Affordable Care Act.

In response to the onset of Covid-19, the American Rescue Plan Act of 2021 (ARPA) was passed in March 2021. This plan expanded eligibility for the Premium Tax Credit that subsidizes healthcare premiums for marketplace users. The ARPA temporarily lifted restrictions on household income, which previously limited eligibility to taxpayers earning up to 400% of the federal poverty line. The income limit was set to resume at the end of 2022, but the Inflation Reduction Act has extended this financial assistance through 2025.1,6 

The continuation of this tax credit is expected to save around 13 million Americans $800 a year on health insurance premiums while keeping about 3 million people insured who otherwise wouldn’t be able to afford it.7 

Vaccines

For Medicare Part B users, the majority of vaccines are covered at no cost to the participant. But for those using Medicare Part D, most vaccines are subject to some cost sharing between the plan and participant—either in the form of a copayment or coinsurance.

Vaccine coverage for Medicaid and CHIP adult users isn’t mandated and currently varies by state. But a recent study found that half of the states weren’t covering the recommended vaccines by the Advisory Committee on Immunization Practices (ACIP), while 15 states had cost-sharing requirements.8   

Starting in 2023, Medicare Part D, Medicaid, and CHIP programs will be required to cover all vaccines recommended by the ACIP at no cost to participants.1 

Preparing for Healthcare Costs in 2023

This time of year gets busy between holiday shopping, end-of-year tax strategy, and building a budget for the new year. But while open enrollment is still happening, take some time to review your current coverage and consider changes that may be coming in the near future. The Inflation Reduction Act will have a direct impact on millions of Medicare and marketplace users over the next decade. As you consider the right coverage for 2023, remember to keep these changes in mind.

If you would like to review how healthcare fits into your overall household budget, don't hesitate to reach out. We can schedule time to talk before the open enrollment period ends.

Sources:

  1. Congress.gov, 2022
  2. Taxpayeradvocate.irs.gov, 2021
  3. Cbo.gov, 2022
  4. KFF.org, 2022
  5. Bloomberglaw.com, 2022
  6. IRS.gov, 2022
  7. Whitehouse.gov, 2022
  8. Macpac.gov, 2022

The content is developed from sources believed to be providing accurate information. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state, or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.