Your Healthcare Costs Could Decrease Thanks to the Inflation Reduction Act

The Inflation Reduction Act could help ease the stress of healthcare costs for folks and families. Find out how this new law aims to make healthcare less of a wallet-busting burden.

Inflation Reduction Act Background

Between 2020 and 2023 the average annual spending on healthcare for a family of four rose from $28,310 to $31,065. This $2,775 increase puts a strain on already tight budgets that are also feeling the effects of inflation. 

Seeing the increase in healthcare costs, the federal government stepped in, passing the Inflation Reduction Act in August 2022. The Inflation Reduction Act worked to extend Marketplace affordability, improve prescription drug access for millions of Americans, and cap out-of-pocket annual spending at $2,000 and monthly insurance costs at $35 for those on Medicare. Let’s look at how your healthcare costs could decrease thanks to the Inflation Reduction Act. 

Prescription Drug Changes for Those on Medicare

One area of healthcare spending that may decrease is prescription drug coverage.

The Inflation Reduction Act changed rules that prevented the federal government from negotiating drug prices with the manufacturers. Now, the US Department of Health and Human Services secretary can negotiate the prices for specific drugs covered by Medicare. The top ten drugs determined by total Medicare expenditures will be negotiable each year starting in 2026. By 2029, this will expand to the top twenty drugs per year. 

The Inflation Reduction Act also improves the drug plan component of Medicare, Medicare Part D. This includes making insulin available to those on Medicare at a price of $35 a month per covered prescription. It gives covered individuals access to recommended adult vaccines without cost-sharing. Vaccines must also be covered at the state level for those on Medicaid.

In addition, the act caps out-of-pocket prescription drug costs for older individuals covered by Medicare and expands the low-income subsidy program (LIS or “Extra-Help”) under Medicare Part D to 150% of the federal poverty level starting in 2024. For those individuals on Medicare, this prescription price negotiation and changes to Medicare Part D have the potential to reduce their healthcare spending while still helping them get the medication they need.

Additional Changes to Medicare

The Inflation Reduction Act will also impact other areas of Medicare to help make healthcare more affordable. Drug companies that raise their prices faster than inflation will be required to pay a rebate to Medicare. This will create an incentive for drug companies to raise prices more slowly. It will also help build up the Medicare program for future and current enrollees. 

Extending Health Insurance Subsidies

While the actual costs associated with obtaining healthcare are on the rise, paying expensive insurance premiums also puts a burden on already tight budgets.

The Inflation Reduction Act has a provision to correct this. It extends the tax credit expansion for those who purchase health insurance through the marketplace created by the Affordable Care Act (ACA).

The original expansion was created as part of the American Rescue Plan Act of 2021. This new expansion increases subsidies for those already eligible for them and expands these subsidies to include individuals making more than 400% of the federal poverty line. 

Through the Inflation Reduction Act, these expansions will continue through 2025.

This will help ensure that no one who purchases an ACA-provided mid-level silver plan will spend more than 8.5% of their income on health insurance premiums. This extension of the health insurance subsidies will help middle-class families and those with the lowest incomes save on their healthcare costs while still having access to the care they need.