By Miranda Franco, Senior Policy Advisor with Holland & Knight LLP

President Joe Biden signed the Inflation Reduction Act (Public Law No. 117- 169) into law on August 16, 2022.  The Act includes prescription drug pricing reform, caps out-of-pocket drug costs for Medicare beneficiaries, and extends the American Rescue Plan’s (ARP’s) increased Affordable Care Act advanced premium tax credit (APTC) subsidies for three years.

The additional APTC subsidies enacted in the ARP have led to significant increases in coverage, and the extension of these subsidies is important, given that millions of people will become ineligible for Medicaid once the COVID-19 public health emergency ends.  These subsidies work on a sliding scale.  Under the original law, people whose incomes are at or just above the federal poverty level (FPL) received the most generous subsidies, and no subsidies were provided for those above 400% of poverty.   However, the American Rescue Plan Act (ARPA) expanded the premium tax credits for a two-year period, making them more generous for lower-income beneficiaries and also extending them beyond the 400% FPL cut-off by capping beneficiary premiums at no more than 8.5% of an individual’s income for a silver plan.  The ARPA tax credits were originally set to expire on January 1, 2023.  However, as mentioned above,  these credits will now be extended for another three years.

The lRA also allows the Medicare program to set the price of certain high-expenditure prescription drugs. Drugs subject to the new negotiated price requirement will be initially selected in 2023, and the prices set will be applied beginning in 2026.  Drugs must be selected by the Centers for Medicare and Medicaid Services (CMS), and an agreement reached with the manufacturer two years before the new price will apply.  The IRA also includes enforcement provisions. Manufacturers will be subject to significant civil monetary penalties (CMPs) and can be assessed an escalating excise tax beginning at 65 percent of the drug’s prior year’s total sales, increasing to 95 percent once the manufacturer is out of compliance for more than 270 days. Alternatively, the manufacturer may withdraw its products from Medicare instead of engaging in negotiations.

Among other notable changes, the IRA restructures the Medicare Part D benefit to provide financial protections for beneficiaries. Currently, there is no out-of-pocket cap for Medicare beneficiaries in Part D; once patients reach the “catastrophic phase” of the benefit, they can be asked to pay 5 percent of the cost of their drugs, without limit, which can total thousands of dollars per year. For the first time, the IRA eliminates this 5 percent cost-sharing in the catastrophic phase (taking effect in 2024) and caps patients’ out-of-pocket costs in Part D at $2,000 (taking effect in 2025).

The IRA also requires coverage of certain adult vaccinations under Medicaid, eliminates some cost-sharing, and requires coverage of approved, recommended adult vaccines and their administration under the Children’s Health Insurance Program (CHIP) for individuals age 19 and older and eliminates cost sharing.