Insulin caps, free shots and drug rebates: What the Inflation Reduction Act means for you

While Medicare’s new right to negotiate prices on a handful of drugs has gotten the most attention, older Coloradans will start seeing lower costs from related changes in the Inflation Reduction Act far sooner.

The new law runs 273 pages with provisions related to taxes, renewable energy and preparation for droughts, among other things. It also includes seven major changes related to the cost of insurance and prescription drugs.

Most of the health care changes only apply to people covered by Medicare, though people who buy their health insurance on the marketplace may see lower monthly costs than they did before the pandemic. Below is an overview of what the act means for you:

Marketplace insurance subsidies

In March 2021, Congress passed the American Rescue Plan Act, which expanded the tax credits that subsidize the cost of health insurance on the marketplace. That meant some households more than four times the poverty line (about $111,000 for a family of four) are eligible for help with their monthly insurance premiums. Some people with lower incomes also received larger subsidies than they did before.

The provision was set to expire Jan. 1, meaning the newly eligible families would have had to pay the full price for insurance again.

When does it start? The enhanced subsidies are already in place, and will last through the end of 2025. If you buy insurance through the Connect for Health Colorado marketplace this fall, they’ll automatically be included when your coverage starts in January.

Does it affect me? If you’re one of the 155,000 Coloradans who received the enhanced subsidies, they’ll remain available. People in different age and income groups had different levels of savings. Some people received no benefit from the extra subsidies, while others saved $10,000 or more, according to the Center for Budget and Policy Priorities.

Out-of-pocket limit

When this takes effect, Medicare beneficiaries will only have to pay $2,000 out-of-pocket for prescription drugs covered by Part D. (They’d still be on their own for drugs Medicare doesn’t cover because of uncertainty about whether they work.)

As is, Medicare beneficiaries pay about $3,100 now before they reach the “catastrophic” threshold. Even once they’ve gotten to catastrophic coverage, they still continue to pay 5% of the cost of their prescriptions.

When does it start? In 2024, people who hit the catastrophic threshold won’t have to pay 5% of their costs beyond that level, effectively capping their costs at about $3,250. The $2,000 cap will take effect in 2025.

Does it affect me? If you’re one of the 1.4 million Medicare recipients the Kaiser Family Foundation estimated has paid more than $2,000 for prescription drugs in a year, yes. How much you save will depend on how high your out-of-pocket costs are; those who take more expensive drugs will get more relief.

Low-income subsidies

Medicare Part D — the part that covers prescription drugs — has subsidies covering almost out-of-pocket costs for recipients earning less than 135% of the poverty line and who have limited assets. That’s about $18,000 in income for an individual and just under $25,000 for a couple. Subsidies are available for people with slightly higher incomes, but they gradually phase out.

The law extends the full benefits to Medicare-eligible people earning 150% of the poverty line (just over $20,000 for an individual and slightly more than $27,000 for a couple). There are still asset limits, though, of about $15,000 for an individual and $31,000 for a couple.

When does it start? 2024

Does it affect me? If you are eligible for Medicare and earn between 135% and 150% of the poverty line each year, possibly. The way Medicare calculates assets is somewhat complicated, though, so you may have to call and work through the application to be sure.

Insulin price cap

Medicare recipients will only have to pay $35 per month for insulin covered by Part D. Plans won’t have to cover every brand of insulin, though they have to cover at least one short-acting and long-acting type, and at least one product using the different delivery systems, such as insulin pens or vials.

When does it start? Jan. 1

Does it affect me? It does if you’re a Medicare beneficiary who uses insulin and isn’t in one of the plans that already cap insulin costs at $35. (Colorado also has an insulin price cap, but it’s set at $100 per month and only applies to people in state-regulated commercial insurance plans.)

Free vaccines

Medicare splits how it covers vaccines, with some falling under the Part D drug program and others under Part B, which covers most medical costs other than hospitals and prescription drugs. Part B already covers vaccines without out-of-pocket costs, meaning it’s free for recipients to get a shot for flu, COVID-19, hepatitis B and some other conditions.

Part D plans can charge out-of-pocket costs for vaccines, though, and how much they charge varies. The most prominent vaccine under Part D is the shingles shot. Under the new law, all vaccines recommended by the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices will be free for Medicare beneficiaries.

When does it start? Jan. 1

Does it affect me? It will if you’re covered by Medicare and your Part D plan didn’t already offer vaccines for free. It’s not a huge savings — people are paying an average of about $57 for the shingles shot, according to the Kaiser Family Foundation.

Drug rebates

This gets a little complicated. The U.S. Department of Health and Human Services will calculate the average price of a drug, based on what Medicare and commercial insurers pay for it. Then they’ll compare the price with the reference year — in this case, 2021. If the average price hasn’t risen more than the overall rate of inflation, nothing happens.

If it has, the drug maker has to pay a rebate to Medicare, which is basically the difference between the actual average price, and what the average price would have been if it only rose as much as the inflation rate. There are exceptions for drugs with a current shortage and for those that cost less than $100 per person, per year.

Say HHS determines the average price is $1,000 higher than it should be, based on inflation. Then the drug maker has to pay $1,000 for every course of the drug covered by Medicare. It can keep the difference in sales to commercial plans, though.

When does it start? Jan. 1

Does it affect me? Not directly, because the rebate goes to Medicare, not to the people taking the medications. Since the average price includes both the prices charged to Medicare and commercial insurers, however, it could put pressure on drug makers to limit increases. On the other hand, they may set starting prices higher, knowing they won’t be able to raise them as much in subsequent years.