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Inflation Reduction Act

The Inflation Reduction Act of 2022 makes an historic down payment on deficit reduction to fight inflation and also finally allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025.

The Inflation Reduction Act’s Impact on Health Care in Colorado

The Inflation Reduction Act of 2022 (P.L. 117-169) was signed into law on August 16, 2022. The Act impacts Colorado seniors and people with disabilities enrolled in Medicare Part D and B and eligible Coloradans who purchase healthcare through Colorado’s health insurance marketplace. The Act includes a $35 monthly cap on the cost of insulin for Medicare recipients, a $2,000 annual cap for out-of-pocket prescription drug costs by 2025 for Medicare recipients, an extension of the health insurance premium tax credits introduced in the American Rescue Plan Act (ARPA) and negotiated prices for qualifying drugs. The law is estimated to save over $48 million across 177,000 Medicare Part D enrollees in Colorado. 

One main focus of the Act is to lower prescription drug costs for Medicare Part D beneficiaries through several key measures: 

The Act caps annual out-of-pocket prescription drug costs for Medicare Part D beneficiaries at $3,500 in 2024 and $2,000 starting in 2025. This change is expected to benefit around 19,000 Colorado Medicare beneficiaries annually who otherwise would face higher costs.  In addition to the $2,000 cap on out-of-pocket prescription costs, the Act caps insulin prescription costs at $35 per month for Medicare beneficiaries. The Assistant Secretary for Planning and Evaluation (ASPE) estimates  that over 16,000 Medicare enrollees in Colorado who use insulin could have an average savings of $515 per year

Across the United States, individuals are experiencing the impact of the Act on prescription drug prices, including Martha and Robin. Martha is a Medicare beneficiary in West Virginia who was diagnosed with Leukemia in 2019. She takes two pills a day to treat her condition, and in 2023, she spent $12,000 out-of-pocket on her medication. In 2024, she expects to pay $3,300 dollars due to the out-of-pocket prescription drug cost cap provision in the Act. Robin is a senior on Medicare from Missouri who relies on insulin. Previously she spent $9,000 a year on insulin and she now reports paying less than $900 a year due to the provision in the Act capping insulin costs at $35 dollars per prescription.

The Act also addresses prescription drug prices by requiring Medicare to negotiate prices for high-cost drugs. This measure is anticipated to save billions of dollars for seniors, people with disabilities, and the federal government. This will mean savings for the over 100,000 Coloradans who take medications like Eliquis, Xarelto, Jardiance, Januvia, and Farxiga. 

In an effort to curb increases in drug costs and ensure prices remain fair and predictable, the Act requires drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation. The Act also addresses costs associated with certain vaccines, not previously covered under Medicare Part D, and starting in 2023, the Act eliminated out-of-pocket costs for recommended vaccines for Medicare Part D covered adults and eligible Medicaid and Child Health Insurance Coverage Program (CHIP) enrollees. In 2020, around 72,000 Coloradan Medicare Beneficiaries received a vaccine under Part D. The US Department of Health and Human Services reported that in 2021 alone 3.4 million people with Medicare paid $234 million in out-of-pocket costs for necessary vaccines, an average of $70 per person, with costs for certain vaccines like shingles previously reaching almost $200. The goal of this provision is to make recommended preventive vaccines more accessible and reduce cost burden on seniors. 

Lower Health Insurance Costs

Beyond prescription drug costs, the Act includes provisions aimed at reducing health insurance premiums and expanding coverage for Coloradans:

To do this, the Act extends the enhanced premium tax credits introduced by the American Rescue Plan Act (ARPA) through 2025. Enhanced subsidies from the ARPA, which the Act extends, lowered costs for 155,000 Connect for Health Colorado enrollees and reduced their average out of pocket costs by $900 per year. In 2024, Connect for Health Colorado’s Chief Executive Officer, Kevin Patterson reported, “3 out of 5 customers could find a plan for $10 per month or less after Advance Premium Tax Credits were applied.” 

Extended financial assistance for healthcare plans and lower prescription drug prices impact Coloradans like Gail Devore, who has lived with Type1 diabetes for over 50 years; a time, during which, a bottle of insulin has cost her $350. As someone who purchases healthcare through the marketplace, in 2021, Gail paid lower premiums due to the ARPA tax credits, which the Inflation Reduction Act extends. On average, these tax credits saved families $2,400 a year on insurance premiums. 

By continuing these tax credits, the Act prevents significant premium increases, which would otherwise occur if the enhanced subsidies expired. This stability in premium costs affects tens of thousands of Coloradans, particularly those who are self-employed or retired but not yet eligible for Medicare. The Act caps health care plan costs at 8.5% of income, down from 15%. For over 13 million Americans, the premium tax credits contributed to an average savings of $800 on Marketplace health care premiums in 2022. Without the continued subsidies, a 60-year-old Coloradan who is retired or doesn’t receive health insurance through work and makes $60,000 a year would pay up to $9,000 a year on a benchmark health care plan compared to approximately $5,100 maintained through the Act. 

The Act provisions are expected to expand health insurance coverage to about 42,000 additional Coloradans, contributing to the ongoing decrease in the state's uninsured rate, which reached an all time low in 2023 at 4.6%. This expansion affects low- and middle-income individuals who previously fell outside the window of eligibility or were not provided sufficient assistance. 

Additional Health Care Reforms

Beyond addressing prescription drug and insurance costs, the Act includes reforms aimed at health care affordability and accessibility. For example, the Act expands eligibility for the Medicare Part D Low-Income Subsidy program, providing full benefits to individuals with incomes up to 150% of the federal poverty level. This expansion will help an estimated 6,200 Colorado beneficiaries who previously received only partial assistance. 

Impact on Coloradans

Overall the Act is projected to save nearly 177,000 Medicare Part D enrollees in Colorado over $48 million through policies limiting out-of-pocket costs, among others. While certain provisions of the Inflation Reduction Act will not come into effect until 2029, the law aims to lower prescription drug costs, reduce health insurance premiums, and expand coverage. For more information on the Inflation Reduction Act and to see how provisions may affect you, visit LowerDrugCosts.gov.

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