Health care provisions could increase access, reduce cost of Medicare

Sweeping health care reform measures that have been debated for years are nearing the finish line.

The U.S. House is expected to take up the Senate-passed Inflation Reduction Act later this week. The legislation would require the U.S. Secretary of Health and Human Services to negotiate directly with drug manufacturers over the price of some high-cost drugs in the Medicare program. It also would require drug companies to pay a rebate to the government if prices rise faster than inflation based on drug use by Medicare beneficiaries; cap overall out-of-pocket drug costs for people with Medicare at $2,000 a year; and limit Medicare beneficiaries’ out-of-pocket spending on insulin products covered by their Medicare Part D plan to $35 per month.

The prescription drug provisions are significant for at least three reasons, says Tricia Neuman, a senior vice president of KFF and executive director of the Program on Medicare Policy.

“First, they offer the first major improvement in Medicare benefits since the ACA passed in 2010,” she says. “Second, they not only improve drug coverage for people on Medicare but they tackle drug prices, which until now have seemed untouchable, given opposition from the pharmaceutical industry. Third, these proposals that definitely have been in the policy pipeline for many, many years are now by all appearances on a fast track to President Biden’s desk for his signature. Together, they are expected to lower drug costs for people on Medicare and reduce federal spending on prescription drugs.”

Neumann and several colleagues discussed the implications of the legislation during Understanding the Health Care Provisions in the Inflation Reduction Act, an August 11 webinar sponsored by KFF.

Under current law, the federal government is expressly prohibited from engaging in price negotiations on behalf of the Medicare population. According to KFF polls, 83% of adults say the cost of prescriptions is unreasonable, 29% say they didn’t take a medication prescribed by their doctor in the past year because of cost, and 26% say it is difficult to afford their medication.

“Why are drug costs an issue?” Neumann asks. “Nearly half of all adults take prescription drugs. Among roughly 65 million people covered by Medicare, virtually all are taking at least one medication. Drugs are an issue most of us know something about, because we come face to face with the cost of our prescriptions every time we go to the pharmacy. While many drugs are low-cost and quite affordable thanks to generics and brand competition, I would bet that nearly everyone knows someone who is struggling to pay for their medication.”

The legislation includes several provisions designed to lower costs:

• For the first time, the federal government would be required to negotiate prices for some of the highest-spending drugs covered under Medicare.
• Drug companies would be required to pay rebates if prices rise faster than inflation for drugs used by Medicare beneficiaries.
• The bill estimates 5% coinsurance for catastrophic coverage in Medicare Part D in 2024; adds a $2,000 cap on Part D out-of-pocket spending in 2025; and limits annual increases in Part D premiums from 2024 to 2030.
• Monthly cost sharing for insulin products is limited to $35 for people with Medicare.
• Eligibility for Medicare Pat D low-income subsidy full benefits would be expanded.
• The legislation eliminates cost sharing for adult vaccines covered under Medicare Part D and improves access to adult vaccines under Medicaid and CHIP.
• Finally, it would further delay implementation of the Trump administration’s drug rebate rule.

These benefits would be implemented gradually in coming years:

• 2023 — Require drug companies to pay rebates if drug prices rise faster than inflation; limit insulin copays to $35 per month in Part D; and reduce costs and improve coverage for adult vaccines in Medicare Part D, Medicaid and CHIP.
• 2024 – Eliminate 5% coinsurance for Part D catastrophic coverage and expand income eligibility for Part D low-income subsidies of up to 150% of the federal poverty line.
• 2025 – Add $2,000 out-of-pocket cap in Part D and other drug benefit changes.
• 2026 – Implement negotiated prices for 10 Medicare Part D drugs.
• 2027– Implement negotiated prices for 15 Medicare Part D drugs.
• 2028 — Implement negotiated prices for 15 Medicare Part B and Part D drugs.
• 2029- – Implement negotiated prices for 20 Medicare Part B and Part D drugs.
• 2024 to 2030 –Limit Medicare Part D premium growth to no more than 6% per year

The bill would also expand the enhanced ACA subsidies, that

Congress passed last year as part of the American Rescue Plan Act, for three years. This temporary boost increased the amount of financial help available to people already eligible to buy subsidized health plans in the ACA Marketplaces and expanded subsidies to more middle-income people, many of whom previously were priced out of coverage.

“We know that in 2020, 1.4 million people had out-of-pocket costs greater than $2,000 In Part D,” says Juliette Cubanski, deputy director of the Program on Medicare Policy. “They would save money based on the new spending cap. We also know that just over four million beneficiaries received a vaccine covered under part D, so they would no longer face out-of-pocket costs. And roughly a half-million Part D enrollees received a partial low-income subsidy benefit, so they will receive more generous levels of financial assistance.”

The Inflation Reduction Act would continue the American Rescue Plan Act subsidies without interruption for three more years through 2025. “This will prevent steep premium increase that millions of people would have faced if the ARPA subsidies had been allowed to expire,” says Cynthia Cox, a KFF vice president and director of the Program on the ACA. “But the subsidies are only temporary, expiring now at the end of 2025, so at least for now, we are left with a bit of a cliffhanger.”

Related: Most Medicare recipients concerned about impact of inflation on prescription costs

Taxpayers ultimately will pay for the increased benefits, and the final tab is still to be determined.

“Extending subsidies for another three years will come at a cost,” says Krutika Amin, associate director of the Program on the ACA. “The Congressional Budget Office estimates that extending the American Rescue Plan Act permanently would cost about $25 billion a year. For a three-year extension, the CBO made slightly different assumptions. How much the extended subsidies will cost the government will depend on how many enroll and what future premium plans look like.”