The Inflation Reduction Act (IRA) has made headlines for lowering prescription drug prices and introducing new Medicare benefits. But, for employers offering health plans, the effects are creating new challenges. Pharmaceutical companies and healthcare providers are expected to begin increasing drug costs to make up for lost revenue.
As a benefits broker, understanding these changes and proactively guiding your clients through them is essential. This blog dives into how the IRA impacts employer-sponsored health plans and offers strategies to help your clients navigate the changes.
What Is the Inflation Reduction Act?
Passed in August of 2022, the IRA is a 10-year plan designed to address critical issues in climate change, healthcare, and tax reform. While we’ve already covered healthcare, more generally, the IRA’s primary focus areas include:
1. Climate and Energy Investments:
- Allocating significant funds to reduce greenhouse gas emissions.
- Promoting clean energy through tax credits and subsidies for renewable energy technologies like solar and wind power.
- Encouraging energy efficiency improvements for homes and businesses.
2. Healthcare:
- Lowering prescription drug costs by enabling Medicare to negotiate prices.
- Expanding Affordable Care Act (ACA) subsidies to make health insurance more accessible and affordable.
3. Tax Reform:
- Closing tax loopholes and ensuring corporations pay a minimum tax rate.
- Increasing IRS funding to improve tax enforcement and compliance.
What Changes Does the Inflation Reduction Act Introduce?
The IRA aims to make healthcare more affordable for Medicare recipients by lowering prescription drug costs:
- In 2025, the IRA will change the cap on out-of-pocket prescription drug costs from $3,500 to $2,000. This measure aims to protect seniors from exorbitant medication expenses.
- The IRA caps the out-of-pocket cost of insulin at $35 per month for Medicare beneficiaries. This provision, effective since 2023, has provided substantial financial relief to seniors managing diabetes.
- Medicare’s reinsurance payments will cover just 20% of brand-name drugs and 40% of generic drugs (previously 80%).
While these are wins for Medicare beneficiaries, employer-sponsored health plans face challenges, including:
- As Medicare negotiates lower drug prices, private insurance plans are likely to absorb the costs, particularly for specialty drugs.
- Employers may pass these increased costs onto employees, leading to higher premiums and out-of-pocket expenses.
- Adjustments to Medicare’s catastrophic drug coverage mean private plans must shoulder more costs for high-cost drugs.
- Employers with retiree health plans may face higher costs as Medicare beneficiaries benefit from new drug price caps.
- Employees may encounter increased premiums or reduced benefits. Specialty drugs, vital for chronic conditions, are particularly affected, potentially creating financial strain for those who need them most.
By anticipating these changes and offering tailored advice to your employer clients, you can help employers mitigate costs while ensuring employees still receive valuable coverage.
Did the Inflation Reduction Act Reduce Inflation?
Analyses indicate that the IRA’s impact on reducing inflation has been minimal so far. The Congressional Budget Office (CBO), a federal agency providing budget and economic information to Congress, estimated that the Act would not have any statistically significant short-term impact on inflation.
Similarly, the Penn Wharton Budget Model estimated that the IRA’s impact on inflation would be statistically indistinguishable from zero in the short term, stating that the Act would “very slightly increase inflation until 2024 and decrease inflation thereafter.”
According to TIME Magazine, however, the IRA has already “changed the world” when it comes to clean energy. It’s also had a significant impact on healthcare. According to HHS, in the first half of 2024, nearly 1.5 million Medicare Part D enrollees saved close to $1 billion in out-of-pocket prescription drug costs due to the IRA’s measures. Additionally, enhanced ACA subsidies have decreased net premium costs, with enrollees saving an average of $705 annually.
Time will tell the other implications of the Inflation Reduction Act and whether or not the government’s investment has actually reduced U.S. inflation. We’ll be sure to keep you updated.
For some strategies to manage rising costs under the IRA, check out our blog on 2025 Health Care Costs.
Additional Resources:
- Brokers’ Corner Podcast—watch and subscribe to the Brokers’ Corner podcast, which dives into the topics that affect your agency and industry and identifies strategies so you can protect and grow your book of business
- BerniePortal Brokers’ Council—a council of benefits brokers from across the country that advises BerniePortal on industry concerns, trends, and the ways technology can best support their agency and employer groups
- BerniePortal for Brokers—leveraging technology to increase your agency valuation and support your employer groups is easier than ever with BerniePortal’s software solution, built for brokers by brokers