The Inflation Reduction Act: Progress or Political Ploy?

Medicare beneficiaries are likely to reap some benefits from the new legislation.

The Inflation Reduction Act is a topic that is different from what I usually cover because I expect little impact on providers but significant impact on Medicare beneficiaries. But let me start with some basics about this legislation. The Senate bill passed 51-50 with Vice President Kamala Harris breaking the tie. The House has accepted the Senate changes.

This is a genuinely ambitious project spanning many years. Although some parts are to be implemented as early as next year, others are delayed as long as 2030. An eight-year timeframe in healthcare is extraordinary—bordering on absurd.

Future changes, or even revocation of this legislation, is entirely possible since after 2024 this legislation will be subject to the results of another presidential election and possibly executive branch turnover.

As, I mentioned, this legislation seems neither intended nor expected to have significant impact on providers beyond the possibility of providing better medication management and reduced pharmacy costs.

At this time benefits are expected to accrue to three groups:

• Medicare beneficiaries with high drug costs. New plans have the potential to cap annual out-of-pocket costs at $2000.

• Second, those beneficiaries between 135 and 150% of federal poverty line will have greater access to pharmacy plans. Currently, cost benefits are only available to beneficiaries below 135 percent of FPL.

• Finally, diabetics and others who use insulin will have benefits. Essentially all forms and formulations of insulin are covered. Notably, other hypoglycemic medications are not included at this time.

Here is what the bill includes. Perhaps most important, the bill explicitly obligates the secretary to negotiate prices for certain drugs. As listeners know, U.S. Department of Health and Human Services has not previously enjoyed the ability to negotiate pharmaceutical prices.

The negotiation-eligible drugs will include those recognized as among the 50 highest-spend drugs from Parts B and D. But before we get excited about price controls and better access the program starts very slowly with a whopping ten negotiation-eligible drugs for 2026 and 15 for 2027. Once the secretary selects the negotiated drug and prices the maximum fair price will be published. This sounds good but 2026 is a long way and another presidential election off.

Next, this bill prevents escalation of drug prices at a rate greater than inflation. If we look at Humalog, a well-known insulin, a medical journal from 2020 reported a cost $21 in 1999 increasing to $332 in 2019 — an increase of well over 1,000 percent. That kind of increase is really only welcome in our retirement portfolios.

All this sounds great, if ambitious, so what could possibly go wrong? In reality, the impact is hard to assess until we see the regulations from the secretary to implement this legislation. Since this involves big pharma there could be significant pushback from the industry. Much of the secretary’s calculations and determinations are immune to administrative and judicial review so we’re unlikely to see a spectacular court battle. But that only means that pharma will find other ways to push back.

The legislation also does not cover two important contributors to healthcare expense. It does not address the impact on insurance premiums and there are no protections for employer sponsored or marketplace plans.

I’m hopeful that this is the start of meaningful healthcare finance reform.