On August 16, President Biden signed the Inflation Reduction Act of 2022 (IRA). The law included climate and tax-related provisions as well as health care provisions that will provide opportunities for states and their residents. The health care provisions:

• Will allow the Medicare program to negotiate lower prescription drug prices
• Will extend enhanced federal subsidies for health insurance marketplace plans for an additional three years

Prescription Drug Pricing Provisions

State leaders have been waiting for federal action to lower prescription drug prices for years. The enactment of the IRA is a landmark step that allows the Medicare program to take action to lower the cost of prescription drugs. The IRA’s drug provisions:

• Authorize the Secretary of Health and Human Services to negotiate Medicare drug prices for certain high-priced, single-source drugs that have been on the market for a number of years. Negotiated prices will initially be published for 10 drugs in 2024 and will go into effect in 2026, with a cumulative number of drugs added annually thereafter
• Require drug manufacturers to pay inflationary rebates to Medicare when they raise drug prices faster than the rate of inflation
• Provide a $35 a month out-of-pocket (OOP) cap for insulin for Medicare beneficiaries.

Despite Congressional efforts to extend certain drug pricing provisions to the commercial market, federal budget reconciliation rules ultimately limited IRA prescription drug pricing provisions to Medicare only.

Impact for States

Although the IRA only impacts the Medicare program, once implemented, states have the opportunity to leverage the law and expand to the commercial sector. Such strategies include:

• States may use federally negotiated Medicare prices as reference rates for their own established upper payment limits. This would allow states to extend the benefits of federal negotiations to state-regulated markets, including the individual insurance market and the state employee health plan.
• To minimize the potential for cost-shifting, states could establish penalties for drug manufacturers that raise prices faster than inflation, extending the protections the IRA offers to Medicare against price hikes to state-regulated markets.
• States can continue to enact OOP caps for insulin for commercially insured individuals. 22 states have already passed OOP caps on insulin as of the enactment of the IRA; because IRA’s OOP cap on insulin is limited to Medicare beneficiaries, other states can continue to extend these important consumer protections.

Along with opportunities, there are some concerns regarding the longer-term impact of the IRA’s measures. First, there are fears that lowering Medicare drug prices could result in cost shifting to the commercial market by manufacturers. In addition, some experts are voicing concerns that drug launch prices, already at historic highs, may continue to rise as manufacturers seek to offset the impact of inflationary rebates that constrain their ability to raise prices for drugs already on the market. Both potential impacts would result in higher drug prices and premiums for state employees, marketplace consumers, and commercially insured individuals — populations where states are increasingly focused.

With both the opportunities and potential challenges of the IRA, states will continue to have a critical role in identifying strategies to reduce the cost of prescription drugs for their residents. States also need to continue to innovate to ensure that Medicaid programs are equipped with long term strategies to afford new drugs that come to market, with increasingly high launch prices.

Enhanced Premium Tax Credits for Health Insurance Marketplace Consumers

The IRA increases the affordability of health insurance by providing a three-year extension of enhanced premium tax credits available to customers who purchase coverage through the health insurance marketplaces. The policies, originally enacted under the 2021 American Rescue Plan Act, both increase the amount of tax credits available for eligible individuals and eliminate the income cap at which individuals and families can qualify for subsidies. This approach ensures that no household pays more than 8.5 percent of its income for coverage. These increased affordability provisions are credited for record enrollments (over 14.5 million individuals) across marketplaces in 2022. IRA’s three-year extension will enable market stability and increased retention as marketplaces prepare to kick off the 2023 open enrollment season.

Conclusion

NASHP will be monitoring the implementation of the IRA’s health care provisions. We will remain a resource for states — from identification of the first prescription drugs for which the HHS (Health & Human Services) Secretary negotiates lower prices on behalf of Medicare, to supporting states to track and address potential unintended consequences on drug prices in the commercial market. NASHP also continues to support state-based marketplaces in providing comprehensive, affordable health coverage to consumers of all income ranges.