12 Reasons the Inflation Reduction Act Should Matter to the Healthcare Industry

This past Friday, while much of the United States was finishing the work week and looking ahead to the weekend, it was announced by the White House that the highly-anticipated Inflation Reduction Act passed the House by a 220-207 margin. The bill, dubbed by many as a successor to the 2021 Build Back Better Act, was the subject of months of negotiations and another source of great division between Congress’ Republicans and Democrats. 

The detailed $700 billion, 730-page bill is designed to address climate change, extend funding for the Affordable Care Act (ACA), enable Medicare to negotiate drug prices and reduce the deficit by raising taxes on corporations. It passed the Senate this past Sunday and was signed into law yesterday by President Joe Biden. 

Additional government spending, another partisan piece of legislation and even more promises of financial aid for the citizens of America. Why does it matter? Because this bill might be at least part of the solution to a problem plaguing the U.S. healthcare industry for many years now: the high cost of prescription drugs. 

Prescription Drug Affordability and Comparability 

Annual U.S. spending on prescription drugs exceeds $450 billion, at least in part due to the fact that the cost of many popular brand-name drugs doubles every seven to eight years. Americans spend approximately $1,200 on prescription drugs per year – higher than any peer nation – and that number isn’t likely to go down anytime soon.  

Need another reason for this type of bill? Here are eight more, courtesy of the nonpartisan Kaiser Family Foundation (KFF):

1. More than three in four adults in the United States think the costs of prescription drugs are unaffordable.
2. Nearly one in three adults say they haven’t taken their medications as prescribed due to costs.
3. Three in ten of those taking four or more prescription drugs say they have difficulty affording their prescriptions.
4. Comparable countries spend an average of 50 percent less on prescription drugs
5. Americans have higher out-of-pocket spending on prescription drugs than citizens of comparable countries.
6. Retail drugs account for 18 percent of total health spending in employer plans.
7. The prices of many brand-name prescription drugs used to treat conditions including diabetes, cystic fibrosis and cardiovascular disease are more expensive in the U.S. than in Germany, the Netherlands, Switzerland or the United Kingdom.
8. More than three-fourths of the American citizens cite drug company profits as the top contributor to higher healthcare spending. 

Medicare Cost Challenges 

The high cost of prescription drugs often is even more prohibitive for some of the approximately 64 million Americans on Medicare. The average Medicare recipient already spends more than $5,500 on out-of-pocket costs, such as deductibles and copayments. 

As the largest public payer for drugs, Medicare accounts for about 30 percent of total retail drug spending in the U.S. Although many beneficiaries have supplemental coverage to help with these expenses, nearly six million enrollees don’t and therefore must pay the full 20 percent of the cost of Part B drugs — without any annual limit or cap. Following are four Medicare-specific reasons legislation like the Inflation Reduction Act is so important in curbing U.S. healthcare spending (statistics from KFF):

1. More than half of all Part B drugs have an average annual cost-sharing liability of at least $1,000.
2. Traditional Medicare beneficiaries face cost-sharing liability greater than $1,000 for eight of the top 10 Part B drugs by total spending and two of the top 10 Part B drugs by the total number of users.
3. The average annual cost-sharing liability for traditional Medicare beneficiaries for almost all (18) of the top 20 high-spending Medicare Part B drugs is $1,000 or more.
4. From 2019 to 2020, half of all drugs covered by Medicare had price increases above the rate of inflation over that period.

The Legislation Lowdown 

Although the pharmaceutical industry reportedly will sue to challenge the new law, it will cap Medicare beneficiaries’ yearly out-of-pocket drug expenses at $2,000 starting in 2025, with the option of spreading out those expenses over monthly payments. It will also grant recommended vaccines, including ones for Covid-19 and shingles, to enrollees free of charge. For Medicare beneficiaries who have diabetes, the law imposes a $35 monthly cap on the cost of covered insulin products (starting in 2023). 

Not all of the Inflation Reduction Act healthcare focus is on Medicare, though. The law delays a stark increase in health insurance premiums for Affordable Care Act plans. These higher payments were initially scheduled to be enacted in 2023 but will — for now — start at the beginning of 2026. 

For more information on decreasing healthcare spending, check out our 5 Tips for Managing Healthcare Waste.