The new law is the most significant health care legislation since the Affordable Care Act was passed more than a decade ago.
A pharmacy technician grabs a bottle of drugs off a shelf in Midvale, Utah, on Sept. 10, 2018. George Frey / Getty Images file
Aug. 16, 2022, 8:26 PM UTCThe Inflation Reduction Act, signed into law by President Joe Biden, is set to lower the cost of prescription drugs — including cancer medications, blood thinners and insulin — for millions of Americans, experts say.
Exorbitant drug prices in the United States are a key reason many people in the U.S. are forced to skip or delay filling their needed prescriptions. A Kaiser Family Foundation poll published last month found that nearly 1 in 2 adults report difficulty affording their health care expenses, including their prescribed medications.
Under the new law, the U.S. government is now able to negotiate prices on the costliest prescription drugs, cap costs at $2,000 per year for people on Medicare, limit the monthly cost of insulin to $35 for seniors, and extend subsidies for people buying their own health coverage through the Affordable Care Act, also known as Obamacare. The law also provides free vaccines for seniors.
The changes are “significant,” especially for anyone in need of high-cost drugs, said Stacie Dusetzina, a health policy professor at Vanderbilt University Medical Center.
People on Medicare are expected to benefit the most from the new law, though health experts say some of the changes could eventually find their way into the commercial insurance market.
However, the changes won’t be immediate; many provisions aren’t slated to take effect for a few years.
Here’s what to know:
The Inflation Reduction Act allows the federal government to negotiate prices for some of the drugs that Medicare spends the most money on, a long sought-after goal by Democrats and some Republicans.
Previously, the U.S. government was explicitly prohibited from engaging in price negotiations with drugmakers on behalf of the Medicare population.
The new law essentially establishes a process whereby the Health and Human Services secretary proposes the government’s offer price for certain drugs, said Tricia Neuman, senior vice president with the Kaiser Family Foundation.
Starting in 2026, Medicare will begin negotiating the price of 10 drugs, followed by an additional 15 drugs in 2027, and eventually an additional 20 drugs in 2029 and beyond. The negotiation process applies to drugs covered under Medicare Part D that lack a generic or comparable alternative, though drugs under Medicare Part B will eventually be included.
A list of the first 10 drugs selected for negotiation is expected to be made public in 2023, Neuman said.
Any drugmaker that refuses to negotiate may face a tax penalty, though that tax may be lifted if the drugmaker chooses to withdraw their drug from the Medicare program.
The Pharmaceutical Research and Manufacturers of America, the lobbying group for the drug industry, criticized the bill Tuesday after Biden signed it into law, saying that it would lead to fewer life-saving treatments.
The cost of insulin will be capped at $35 a month for patients on Medicare under the new law.
However, the law does not cap the cost of insulin for the millions of people with private health insurance, as Republicans successfully blocked its inclusion in the bill.
The cap on insulin for people on Medicare takes effect next year.
The monthly cap is important, experts say, because patients usually need to buy multiple vials of insulin per month to maintain their health, which can sometimes cause costs to skyrocket.
A study published last month in the journal Health Affairs found that 14% of people who use insulin in the U.S. face what is described as a “catastrophic” level of spending on the medication, meaning that after paying for other essentials, such as food and housing, they spend at least 40% of their remaining income on insulin.
Medicare will still have flexibility on what types of insulin it covers, Neuman said, adding it won't have to cover every insulin product on the market.
The law includes a $2000 out-of-pocket spending cap on prescription drugs for Medicare beneficiaries. It takes effect in 2025.
Previously, people on Medicare had to spend about $7,000 out of pocket on their prescriptions before qualifying for "catastrophic coverage," according to Medicare's website. Under catastrophic coverage, patients are only charged either a copayment — which is a set amount, usually $10 or $20 per prescription — or a coinsurance percentage, which is set at 5% of the cost of the drug.
Under the new law, in 2024, that 5% coinsurance will be reduced to zero, eliminating it.
The new benefit is not tied to income, said Juliette Cubanski, a Medicare expert with Kaiser Family Foundation, meaning that the out-of-pocket spending limit will apply to everyone on Medicare.
Dusetzina, of Vanderbilt University Medical Center, said the benefit is arguably the most significant portion of the law. She noted patients with cancer or multiple sclerosis can spend tens of thousands of dollars a year on their medications, even after Medicare covers its portion of the bill.
The Medicare program does already offer low-income subsidies that cap spending at a certain threshold, though most people don’t qualify.
About 1.4 million people on Medicare had annual out-of-pocket costs greater than $2,000 in 2020, according to Kaiser Family Foundation.
The law immediately extends subsidies through 2025 for the roughly 13 million people who buy individual coverage through the ACA. The subsidies were set to expire this year.
Next year, seniors on Medicare will no longer have a copay for adult vaccinations, such as the shingles and pneumonia vaccines.
Beginning in 2024, drugmakers will have to pay a rebate to Medicare if they raise the price of their medications faster than inflation, dampening drugmakers’ abilities to hike prices.
That said, there is a concern among some experts that drugmakers will be less hesitant to set higher list prices for new drugs, Dusetzina said. That's because, she said, drugmakers are less likely to face backlash from the public because people on Medicare will only need to spend $2,000 before the government covers the rest. And with the inflation penalty, drugmakers will need to set the highest list price possible to reap the most revenue.
Berkeley Lovelace Jr. is a health and medical reporter for NBC News. He covers the Food and Drug Administration, with a special focus on Covid vaccines, prescription drug pricing and health care. He previously covered the biotech and pharmaceutical industry with CNBC.
