Winners and losers with the Inflation Reduction Act
For sponsors of employee health plans, there are both positives and negatives.
The recent passage of the Inflation Reduction Act of 2022 (IRA) has significant health insurance implications for Americans, with $98 billion of its $485 billion in spending going to health care programs. This spending is mostly in the area of expanding government subsidies for those on Affordable Care Act (ACA) individual plans — but the plan also saves money by redesigning Medicare pharmacy spending to include negotiating prices for some drugs. An analysis by the Kaiser Family Foundation estimated that the drug pricing provisions would save the government close to $100 billion over ten years.
Read more: How does the Inflation Reduction Act affect self-funded plans?
Like any major legislation, the bill is complicated and features winners and losers. For sponsors of employee health plans, there are both positives and negatives. The government’s new ability to negotiate lower Medicaid drug prices may cause drug manufacturers to raise costs on drugs for employer plans. Expanding coverage of individual plans may make some employer-sponsored plans less attractive.
On the other hand, bringing more transparency and cost control to some Medicare-covered drugs may increase pressure for similar moves in private markets, and for more drugs. Expanding ACA coverage may encourage more employers — especially smaller companies — to offer individual coverage health reimbursement arrangements (ICHRAs), allowing employees to purchase ACA products.
Dodging the bullet of increased health care inflation
Although many economists question whether the Inflation Reduction Act will have any real impact on inflation in the long run, there is little doubt that it will help Americans with health care costs in the short term.
Earlier legislation, the American Rescue Plan of 2021, had been enacted in part to help Americans weather the economic challenges of the COVID-19 pandemic. That act expanded subsidies for ACA plans, making them more affordable to more enrollees. The subsidies were set to expire in 2022, and an analysis by the Urban Institute estimated that 3.1 million would have lost health insurance if the IRA had not extended those subsidies, referred to as premium tax credits (PTCs).
Related: Health care provisions could increase access, reduce cost of Medicare
The analysis outlined the cost increases that consumers might have seen if the IRA had not been enacted: “Individuals and families enrolled in the Marketplaces or other nongroup coverage [would] pay hundreds of dollars more per person each year in premiums,” the analysis says. “People eligible for PTCs with incomes between 150% and 400% of the federal poverty level (FPL) would pay more than $1,000 more per person for a silver plan. People with incomes above 400% of FPL who would lose PTC eligibility would pay roughly $2,000 more per year.”
The new legislation also continued a cap on certain types of Medicare Part D spending on drugs. The Urban Institute estimated that this would save $900 annually per person for the 866,000 Medicare enrollees under the program.
Warning signs on ACA spending
One long-term issue for the expansion of ACA coverage is the cost to the federal government and taxpayers. Simply put, health costs and cost inflation are higher in the U.S. than in nearly any other country, and covering more people does not address the problem of higher costs. True, the steps toward negotiating costs for drugs may make a difference, but the IRA takes only a small step in this direction.
An analysis in Health Affairs warns of these rising costs and uses Congressional Budget Office (CBO) data to estimate that the IRA’s increased federal subsidies with the ACA for Americans below the age of 65 will raise costs by $25 billion a year, every year for the next decade.
Read more: Employees increasingly want ACA marketplace health plans, report says
Adding to the problem is an aging population, one which enjoys substantial government financial support via Social Security and Medicare, which is supported by taxing the working population under 65.
“CBO’s projection is a stark reminder of the declining U.S. tax base that will be available to support our country’s entitlement programs for the aged,” the analysis says, written by Brian Blase of the Paragon Health Institute. “Rather than confronting this problem, policymakers have chosen to ignore the implications of the aging population for too long.”