Newspaper clippings of healthcare cost headlines
Employee Benefits

Inflation Reduction Act Lowers Health Cost But Not for You

Den Bishop
Den Bishop
Senior Advisor

The recently enacted Inflation Reduction Act included two major health cost provisions, but neither will help employers or workers covered by the employer’s health plan.

Inflation Reduction Act Lowers Health Cost But Not for You

The American Rescue Plan Act, part of the COVID-19 relief efforts, significantly expanded subsidies within the Affordable Care Act (aka ACA, Marketplace, Obamacare). These COVID relief subsidies were set to expire at the end of 2022. This enhanced subsidy expiration would have led to dramatic increases in the cost to participants. The increases would have been fueled by the 2023 rate increases and a return to the lower government subsidies that were in place prior to 2021.

The Inflation Reduction Act enhanced subsidies are in place for 2023-2025, at which point they are set to expire. The history of government subsidies leads me to believe that this is a new example of how Congress kicks a can down the road to keep this issue as an on-going party platform issue at election time.

Medicare Prescription Drug Price Negotiation

The Inflation Reduction Act opens the door for the federal government to negotiate drug prices for some of Medicare’s highest cost drugs. It is well-documented that the prices for prescription drugs are typically higher in the U.S. than in other countries. The U.S. is one of the few countries where the government is not involved in drug price negotiation.

This is a major event for Medicare; however, there is no link to the government-negotiated prices for employers or private insurance. Congress tried to include private insurance in the legislation, but government negotiation for private insurance was discarded because the legislation was passed through Budget Reconciliation and did not have the support of 60 votes in the Senate.

This price negotiation legislation will have a cost-saving impact for Medicare. The question is how this will impact those outside the government program.

The great hope is that this will lead to further legislative reform that will protect patients and consumers who have health insurance other than Medicare. The great fear is that the pharmaceutical industry will follow the path of America’s hospitals. Medicare sets reimbursement rates for hospitals, but the gap between what Medicare pays and what private insurance pays has grown significantly over time. The prices vary by region, by hospital, and by procedure, but the national average results in private insurance paying about 250 percent of Medicare’s reimbursement.

Are You Covered?

So, does the Inflation Reduction Act lower healthcare inflation for you? It does so directly if you are one of the 13 million people receiving ACA subsidies, and it does so for you over time for the prescription drug costs if you are covered by Medicare.

If you are one of the 155 million people who receive their health insurance through their work, the legislation was not successful in lowering health inflation for you.

Thoughts or questions? I’d love to hear from you. Please don’t hesitate to reach out!

Explore more from Holmes Murphy