What You Need to Know About Medicare Provisions in the Inflation Reduction Act (IRA)

This article was written by Jamie Sullivan, MPH, and COPD Advocate.

By now, you have likely heard about a new law called the Inflation Reduction Act (IRA). The IRA is a wide-ranging bill that touches on many policy areas outside of health care. This blog will cover a few aspects of the IRA that may help you afford your medications in the coming years.

Medicare Provisions in the IRA

Due to reconciliation rules, which is the strategy used to pass the IRA, only federal health insurance reforms are included, focused mainly on Medicare Part D plans. Here are a few fundamental changes you should know and the timeline for when the changes take effect.

1) Eliminates patient cost-sharing in the catastrophic phase of Medicare Part D coverage beginning in 2024:

Medicare considers you to be in the 'catastrophic phase' once annual drug spending reaches $7,050, including the amount you have paid and the amount your insurance company has paid. Once you enter this phase, you are responsible for 5 percent of the drug's cost for the remainder of the year. While this may seem like a small percentage of the total cost, it can still be a large sum of money every month, especially for those requiring multiple drugs and those using drugs without a generic option.

The IRA will eliminate the 5 percent out-of-pocket obligations starting in 2024. This change ensures that when you reach the $7,050 annual spend threshold, you will no longer have any out-of-pocket expenses for Medicare Part D drugs in that calendar year.

2) Capping Medicare Part D annual out-of-pocket costs at $2,000 beginning in 2025:

Most commercial health plans have annual limits for how much someone can expect to pay for care and treatment. Medicare Part D, the prescription drug benefit, has no such limitation, leaving seniors vulnerable to overwhelming costs with no relief.

In addition to eliminating cost sharing in the catastrophic phase for 2024, the IRA includes a $2,000 annual cap on out-of-pocket costs, beginning in 2025. The patient advocacy community has advocated for implementing a cap for years, and this change will benefit millions of people with chronic diseases.

3) Creates a 'smoothing' mechanism to spread out-of-pocket costs throughout the plan year, beginning in 2025:

For people on fixed budgets, the unpredictability of monthly costs forces choices between essential expenses, like medication. Couple that with deductibles resetting in January, even though income doesn't increase for most people for the first month or two of the year. The IRA addresses this burden by providing insurance companies with a means to collect monthly fixed payments throughout the year. With this new provision and the $2,000 out-of-pocket cap, it could be easier to predict your regular drug costs annually. However, more detail about implementing the policy will be needed.

Other Medicare Changes under the IRA:

The IRA caps Medicare Part D insulin costs at $35 per month starting in 2023. Unfortunately, the cap could not be extended to private health plan coverage in the IRA. The law also addresses an issue the COPD Foundation has weighed in on in the past: eliminating cost-sharing for recommended adult vaccines paid for by Medicare Part D plans, such as the shingles vaccine and others.

There is some good news about premiums. To protect against significant Medicare Part D premium increases, the IRA sets an annual cap of 6 percent growth through 2029 and looks at the process used to determine premiums after 2029. It also increases the eligibility for Medicare's Low Income Subsidy program to 150 percent of the federal poverty level, opening up a previously unobtainable source of relief from huge drug costs.

Finally, for those not on Medicare, the IRA extends premium tax credits as a means to drastically reduce costs for eligible individuals to purchase insurance plans sold on the open marketplace.