The Inflation Reduction Act of 2022: Healthcare Provisions Updated: 08/16/2022 - McDermott+Consulting

The Inflation Reduction Act of 2022: Healthcare Provisions Updated: 08/16/2022

After almost a year of negotiations among congressional Democrats and the White House, the Inflation Reduction Act of 2022 (IRA) was signed into law by President Biden on August 16, 2022. It passed in the US Senate by a vote of 50–50, with the vice president breaking the tie, on August 7, 2022. The bill passed the US House of Representatives August 12, 2022 by a party-line vote of 220-207.

The package was initially proposed as the Build Back Better Act, which passed in the House on November 19, 2021. Democrats hit roadblocks to passing the bill in the Senate, however. Senators Manchin (D-WV) and Sinema (D-AZ) expressed concerns regarding the size and cost of the package, especially considering rising inflation. After months of negotiations, Majority Leader Schumer (D-NY) and Senator Manchin reached a deal to reduce the federal deficit, reform prescription drug pricing, make several tax reforms, invest in energy and climate change, and extend the American Rescue Plan Act (ARPA) advanced premium tax credit (APTC) subsidy increases for health plans purchased through the Affordable Care Act (ACA) marketplaces for three years. The Manchin-Schumer deal was further modified to gain the support of Senator Sinema. None of the changes required to secure her vote impacted the healthcare provisions.

While the original vision for this reconciliation bill was substantially higher and included more provisions and dollars, the IRA is still a significant bill that achieves many of President Biden’s initiatives on climate, taxes, energy and healthcare. The bill establishes a novel pathway for price negotiation, the first time such a process would be allowed in Medicare Part B and D, and is one of the most consequential pieces of healthcare legislation in the last 25 years.

Presuming the bill passes in the House, the process of implementing the prescription drug pricing provision will be long and potentially arduous. It will certainly be subject to legal challenge, as we have seen with most healthcare legislation in recent memory. While the changes to Part D may not be fully implemented for one or two plan years, the provision capping Medicare’s out-of-pocket spending on prescription drugs is an extremely important and long-awaited beneficiary protection. The implementation process for the drug price negotiation provision will also take time and be subject to substantial advocacy. This bill will join other landmark legislation, such as the Medicare Modernization Act and the ACA, in heralding a significant departure from the preceding legislative framework.

The extension of the ACA tax credits will make coverage through the ACA more affordable. The additional subsidies through the tax credits enacted in ARPA have led to significant increases in coverage, and the maintenance of these subsidies is vital since millions of people will become ineligible for Medicaid once the public health emergency ends. These subsidies will help many individuals avoid becoming uninsured. These coverage gains will remain in jeopardy, however, because this measure is only a three-year extension rather than permanent policy. Finding a pathway to a permanent extension before the three-year window ends will be a political imperative.

Click here to download the detailed summary of the healthcare provisions of the IRA.