On August 12, 2022, the U.S. House of Representatives passed the Inflation Reduction Act. This act is expected to be signed into law shortly by President Joe Biden. While this bill is primarily aimed at fighting inflation and reducing carbon emissions, it also contains a number of reforms that will impact health coverage. The health reforms included in the bill have staggered effective dates and will be implemented over the next several years.

What is the Inflation Reduction Act?

The Inflation Reduction Act will initiate a number of changes in our country, including the use of Fiscal Year (FY) 2022 reconciliation instructions to raise revenue, lower prescription drug costs, fund new energy, climate, and health care provisions, and reduce budget deficits.

This new legislation will reduce budget deficits by $305 billion through 2031 based on the CBO score – including over $100 billion of net score-able savings and another $200 billion of gross revenue from stronger tax compliance.

Because the prescription drug savings will be larger than new spending costs, CBO finds the legislation will reduce net spending by almost $15 billion through 2031, including by nearly $40 billion in 2031.

Once fully phased in, the plan would also slightly cut net taxes by about $2 billion per year – with expanded energy and climate tax credits roughly matching the size of new tax increases. The legislation would generate nearly $300 billion of net revenue over a decade, mostly from improved tax compliance and the spillover effects of higher wages as a result of lower health premiums — neither of which are tax increases — along with early revenue collection as corporations shift the timing of certain payments.

Overall, CBO estimates the legislation includes $790 billion of offsets to fund roughly $485 billion of new spending and tax breaks (as negotiators account for the policies, it includes $739 billion of offsets and $433 billion of investments). Unlike prior versions of this reconciliation bill, such as the House-passed Build Back Better Act, this legislation would reduce deficits. Along with other elements of the bill, it is likely to reduce inflationary pressures and thus reduce the risk of a possible recession.

The package includes $386 billion of climate and energy spending and tax breaks – mainly for new or expanded tax credits to promote clean energy generation, electrification, green technology retrofits for homes and buildings, greater use of clean fuels, environmental conservation, and wider adoption of electric vehicles, among other purposes. The package would also increase health care spending by nearly $100 billion, mainly by extending the American Rescue Plan’s temporarily-expanded Affordable Care Act (ACA) premium tax credits for an additional three years, through 2025.

Accompanying this new spending would be various regulatory and permitting reforms to help reduce energy costs outside of the reconciliation package.

The $485 billion of new costs would be offset with $790 billion of additional revenue and savings over a decade. This includes roughly $313 billion from imposing a 15 percent minimum tax on corporate book income; $322 billion for various reforms to reduce prescription drug costs; $124 billion ($204 billion gross) from reducing the tax gap through stronger Internal Revenue Service (IRS) enforcement; $13 billion from closing the carried interest loophole; and $18 billion from fees on methane emissions, Superfund cleanup sites, and a permanent extension of the higher tax rate for the Black Lung Disability Trust Fund.

The legislation would reduce deficits by over $20 billion in the first year, and – with interest – over $85 billion in 2031. Over two decades, it is estimated to reduce debt by nearly $2 trillion. Assuming the permanent unpaid-for extension of ACA subsidies, the plan would likely save almost $50 billion per year by 2031.

You can view the official legislation and summary here.

What You Should Know Regarding New Health Reforms

The Inflation Reduction Act’s health reforms will primarily impact those with Medicare coverage.

High and rising drug prices are a top health care affordability concern among the general public, with large majorities of Democrats and Republicans favoring policy actions to lower drug costs. Provisions in the Inflation Reduction Act are expected to lower out-of-pocket spending by people with Medicare and lower drug spending by the federal government.

Here is a general timeline that includes some of the changes for our nation’s healthcare in the upcoming years:

2023-

• Drug companies will be required to pay rebates if drug prices rise faster than inflation
• Insulin co-pays will be capped at $35 per month for people with diabetes enrolled in Medicare
• Coverage will be improved and costs reduced for adult vaccinations in Medicare Part D, Medicaid and CHIP

2024-

• 5% co-insurance will be eliminated for those enrolled in Medicare Part D catastrophic coverage
• Eligibility will be expanded for Medicare Part D Low-Income Subsidy full benefits up to 150% FPL
• From 2024-2030, the premium growth for Medicare Part D will be limited to no more than 6% per year

2025-

• Out-of-pocket prescription drug costs will be capped at $2,000 per year for Medicare beneficiaries

2026-

• Beginning in 2026, the Secretary of Health and Human Services will be able to negotiate the prices of certain Medicare drugs each year. The negotiations will take effect in 2026 for 10 drugs covered by Medicare, increasing to 20 drugs in 2029

2027-

• Negotiated prices will be implemented for 15 Medicare Part D drugs

2028-

• Negotiated prices will be implemented for 15 Medicare Part B and Part D drugs

2029-

• Negotiated prices will be implemented for 20 Medicare Part B and Part D drugs

The bill also implements a three-year extension on increased health insurance subsidies for coverage purchased through an Exchange. These enhanced subsidies were originally provided as part of the American Rescue Plan Act, a COVID-19 relief bill, and were set to expire at the end of 2022.

How BRG Advisory Group Can Help

Healthcare changes can be confusing, and even stressful when you’re unsure of the impact they may have on you or your employees. When it comes to ensuring that you’re getting the best coverage possible, it’s important to get the professional advice you deserve. Here at BRG Advisory Group, we’re here to help!

Call us today at 800-971-3006 or email us at benefits@brgadvisorygroup.com to find out how BRG Advisory Group can help to make sure you and your employees have the right coverage for you!