The Inflation Reduction Act, which was passed by the Senate on Sunday, included several major health care reforms. Writing for STAT News, Rachel Cohrs reveals who the reforms will benefit most if the bill is signed into law.

Our take: 10 health policy topics—including drug pricing reform—to watch in 2022

Background

On Sunday, the Senate voted 51-50—with Vice President Kamala Harris casting the tiebreaking vote—to pass the Inflation Reduction Act, a $740 billion package.

If passed by the House of Representatives and signed by President Joe Biden, the Inflation Reduction Act will allow Medicare to negotiate certain prescription drug prices with pharmaceutical companies, saving the federal government roughly $288 billion over 10 years. That provision will apply to 10 drugs starting in 2026 and expand to 20 drugs in 2029.

For Medicare beneficiaries, the bill will also introduce a $2,000 cap on out-of-pocket prescription drug costs starting in 2025, ensure seniors are able to receive free vaccinations next year, and cap the cost of insulin at $35 a month starting next year.

The bill will also penalize drug manufacturers if they raise the prices of their drugs faster than the rate of inflation. If the increase in a drug's price outpaces inflation, the manufacturer will be required to pay a rebate to Medicare. The Senate parliamentarian ruled that this provision could apply only to Medicare under the rules of reconciliation, not to private insurance.

Who will benefit most from the drug pricing bill?

Ultimately, Medicare beneficiaries ages 65 and older will see the most direct benefit from the policy changes. According to Cohrs, four types of Medicare enrollees are most likely to see benefits at the pharmacy if the bill is signed into law, including:

1. Enrollees with high drug costs

Starting in 2025, the drug pricing reform would cap Medicare patients' annual out-of-pocket costs at $2,000. Experts have different estimates of how many people would be affected by the cap.

For instance, analysts at the Kaiser Family Foundation (KFF) determined that 1.4 million people with traditional Medicare benefits spent at least $2,000 in 2020. However, a separate estimate co-authored by Sean Dickson, director of health policy at the West Health Policy Center, found that at least 3.1 million Medicare patients would have saved on out-of-pocket costs if the cap had been instituted in 2021.

2. Enrollees who make up to 150% of the federal poverty line

Currently, Medicare enrollees who make between 135% and 150% of the federal poverty level (FPL) receive government assistance for drug costs, but they still have to pay 15% of the price of their drugs.

Starting in 2024, the reform would provide full benefits to individuals making up to 150% of the FPL, which would give these enrollees a set, low cost for each prescription instead of paying a percentage of the full price.

According to a KFF analysis, roughly 400,000 people fell into that category in 2020. However, Stacie Dusetzina, a Vanderbilt University associate professor of health policy, noted that there could be more patients who are eligible, but not enrolled in Medicare.

"This is a really big deal because by definition, these patients are near poor but still have high cost-sharing," Dusetzina said.

3. Insulin users

Starting in 2023, the drug pricing plan would also require all Medicare plans to provide insulin at a maximum price of $35 per month.

According to data compiled by life science analytics firm IQVIA, roughly a quarter of Medicare patients paid more than $35 per month for insulin in 2021, even though they had options to enroll in a plan that caps insulin at $35 a month.

4. Enrollees with current prescriptions

The proposal has the potential to make drug prices more predictable for Medicare patients who currently taking pharmacy drugs on the market since the bill penalizes firms that raise prices faster than the rate of inflation, Cohrs writes.

If passed, this policy will go into effect this year, with penalties starting in October for pharmacy drugs, and in January 2023 for drugs administered at physicians' offices.

"It's hard to predict the future of which drugs would have seen dramatic price spikes, but similar to the annual cost protections, it allows more predictability for Medicare patients," Cohrs notes.

Additional considerations

According to Cohrs, the drug pricing reforms will not help as many people as Democrats had initially hoped because two major provisions—capping insulin costs and requiring manufacturers to pay inflation-based rebates—were prevented from applying to those with employer-sponsored insurance.

So, while most of the patients who will benefit from the policies are adults 65 and older participating in Medicare, Cohrs notes that there is still one additional variable to consider—insurance premiums. "At least for a little while, as Medicare's benefits get more generous and more patients can afford drugs, spending may go up," Cohrs writes.

"The premium effect is really difficult to predict, almost more difficult than the effect on drug prices," said Juliette Cubanski, the deputy director of Medicare at KFF.

If passed, the bill would cap Medicare premium increases at 6% each year through 2029. However, some Medicare beneficiaries could still pay more for premiums than they would save in the short term, Cohrs writes.

Notably, none of the provisions in the bill would directly impact individuals who are insured through their employers or through Affordable Care Act marketplaces. And according to Cohrs, there is currently "a raging debate over whether the pharmaceutical industry will charge these patients more to make up for lost money, or whether cost controls in Medicare could set a precedent for other insurers to demand lower prices, as well."

In addition, "[i]t seems counterintuitive, but Medicaid programs could actually have higher costs too if drugmakers raise their prices more slowly, according to congressional budget analysts," Cohrs adds. "If that trend continues, it will cause states to have to make choices to work around the financial hit." (Cohrs, STAT News, 8/9)