The Inflation Reduction Act and its Implications for Health Plans

The Inflation Reduction Act and its Implications for Health Plans

In response to surging inflation rates, the Biden Administration introduced the Inflation Reduction Act (IRA)1, a legislation targeting not just healthcare but also the energy, manufacturing, and transportation sectors. The Act demands that major health programs such as Medicare Advantage Part D, the Affordable Care Act (ACA), Medicaid, and the Children’s Health Insurance Program (CHIP) adjust in accordance with its stipulations to promote a sustainable healthcare future.

Implementation Timeline of the IRA

Ratified on August 16, 2022, the Act serves as a federal blueprint directing finances toward initiatives that counteract the fiscal deficit while bolstering economic prospects for citizens2. It earmarks funds for:

  • Enhancing the U.S. energy framework
  • Climate change mitigation and carbon emission reductions
  • Stimulating local manufacturing
  • Overhauling incentives for electric vehicle and battery technologies
  • Healthcare cost reductions

Health plans should be especially attentive to the Act’s clauses pertaining to the revocation of the drug rebate rule, Medicare’s newly-gained ability to haggle drug prices, a yearly inflationary cap on medications, and a three-year extension of ACA subsidies.

The IRA will have immediate impacts to health plans in 2023 and will continue to 2026 and beyond3.


  • Manufacturers pay rebates for drugs increasing faster than the Consumer Price Index for All Urban Consumers if not selected for price negotiations.
  • Insulin cost sharing for Medicare beneficiaries is capped at $35 for both Part B and D.
  • No cost sharing for Part D vaccines.


  • Beneficiaries who exceed the True out-of-pocket TrOOP level (the limit before catastrophic benefit phase) have no additional costs.


  • Part D benefits will be redesigned, including a $2,000 maximum out-of-pocket limit and the removal of the Coverage Gap Discount Program (CGDP).


  • Government will negotiate prices directly with manufacturers for 10 drugs, setting a "maximum negotiated price."

What effect will this have on Health Plans?

The cap on medication costs will have a widespread impact on health plans in all markets. Noteworthy revisions include:

Medicare Prescription Drug Inflation Rebate Program: Designed to curb medication prices for consumers, this initiative mandates pharmaceutical companies to repay CMS should their drug costs outpace inflation. This could lead to a two-fold outcome: manufacturers may either absorb the rebate cost or curtail prices to stay below the inflation threshold.

Prescription Drug Pricing Negotiations: CMS now wields the authority to broker medication prices for specific drugs under Medicare Part B and D. This marks a significant departure from the previous noninterference stance. This power shift may trigger a spectrum of market reactions from slashing drug prices to altering coverage specifics for particular medications.

Additionally, from September 1, 2024, CMS will disclose negotiated drug prices, potentially affording plans a leverage in bargaining for more competitive rates.

Yearly Out-of-Pocket Expense Cap: From 2025, Medicare Part D enrollees will enjoy a yearly $2,000 ceiling on out-of-pocket medication expenses. Surpassing this limit means no further co-payments for the year, transferring the cost burden to Medicare Part D providers.

Cost-Sharing Provisions: Diabetic patients can now avail of insulin at a $35 monthly cap, and vaccines under Medicare Part D come at zero cost. While this might escalate adherence and vaccination rates, plans could bear higher costs.

Extended Vaccination Coverage: As of January 1, 2023, Medicare Part D recipients get comprehensive vaccine coverage as recommended by the Advisory Committee on Immunization Practices, with Medicaid and CHIP members set to benefit from October 1, 2023.