The Inflation Reduction Act Reduces Health Care Costs for Millions of Americans

The Inflation Reduction Act is helping millions of Americans save money on health care. This initiative, backed by President Biden, fulfills a commitment to lower prescription drug costs, make health insurance more affordable, and support working families.

Under this law, people across all 50 states, U.S. territories, and the District of Columbia will benefit from:

• Reduced Medicare prescription drug prices through manufacturer price negotiations.
• A yearly cap on Medicare out-of-pocket prescription drug costs, set at $2,000 starting in 2025.
• Continued savings on health insurance premiums through HealthCare.gov and state-based Marketplaces.

Learn more about when these changes take effect in programs like Medicare, Medicaid, the Children’s Health Insurance Program, and the Health Insurance Marketplace.

You can also find answers to common questions about lower drug costs and enhanced Medicare benefits under the Inflation Reduction Act.

Medicare recipients will see reduced prescription drug costs and improvements in the prescription drug program.

People with Medicare will see reduced prescription drug costs and updates to the Medicare prescription drug program.

Before the Inflation Reduction Act, over 5 million Medicare recipients struggled to afford their medications. Those with lower incomes and individuals under age 65 were especially likely to skip necessary treatments due to high costs. The Inflation Reduction Act addresses this issue, helping millions of Medicare recipients pay less for their prescriptions.

• Medicare beneficiaries using insulin covered by their drug plan or through a traditional pump under Traditional Medicare will pay no more than $35 for a month’s supply of each insulin product. They will also not pay a deductible for these insulin products. This change began on January 1, 2023, for insulin covered by Medicare drug plans and on July 1, 2023, for insulin used through a pump covered under Medicare’s durable medical equipment benefit. This insulin cost-sharing cap is expected to benefit at least 1.4 million people with Medicare.
• Starting in 2024, individuals with higher drug costs who enter the catastrophic phase of Medicare prescription drug coverage will no longer need to pay cost-sharing for their medications during this phase.
• Additionally, beginning in 2024, financial assistance for low-income Medicare beneficiaries will expand to include individuals with incomes below 150% of the federal poverty level and limited resources. This expansion will help these beneficiaries afford their Medicare drug plan premiums and cost-sharing.
• In 2025, Medicare prescription drug coverage will introduce a yearly cap of $2,000 on out-of-pocket costs for prescription drugs. Starting that same year, beneficiaries will also have the option to spread their prescription expenses across monthly payments instead of paying all at once.

Medicare's new authority to negotiate drug prices will provide beneficiaries with greater access to life-saving treatments while reducing costs for both individuals and the Medicare program.

Americans currently spend over $1,500 per person each year on prescription drugs, with prices significantly higher than in other countries. One major reason for these high costs is a lack of competition in the drug market. The Inflation Reduction Act aims to increase competition, leading to lower prescription drug prices for Medicare recipients.

The ability of Medicare to negotiate drug prices will push pharmaceutical companies to adopt new business strategies to remain competitive. This competition can drive innovation, leading to the development of new treatments and delivery methods. Other government programs, such as the Departments of Defense and Veterans Affairs and the Indian Health Service, have been negotiating drug prices for decades. Now, Medicare will have the same ability to negotiate directly with drug manufacturers, reducing costs for beneficiaries on some of the most expensive medications.

In 2023, Medicare will identify the first 10 drugs to be negotiated. These will be chosen from the list of brand-name Medicare Part D drugs with the highest spending and no competition. The negotiated prices for these drugs will become available in 2026.

Following this, Medicare will select and negotiate 15 additional Part D drugs for 2027, 15 more Part B or Part D drugs for 2028, and 20 more Part B or Part D drugs each year thereafter. Drug manufacturers that fail to comply with negotiation rules for selected drugs will face penalties, including fines and taxes.

This new process ensures that Medicare beneficiaries will have access to critical medications at more affordable prices.

The Inflation Reduction Act strengthens Medicare for both current and future beneficiaries. It improves healthcare accessibility, equity, and affordability by reducing Medicare’s spending on prescription drugs and controlling price increases.

The law reduces Medicare’s prescription drug spending and limits price increases, ensuring a more sustainable and effective program. Medicare benefits are expanded through cost-saving program improvements, making care more affordable without increasing taxpayer burdens.

• In 2025, Medicare will introduce a new Manufacturer Discount Program. This program will require drug manufacturers to provide discounts on specific brand-name drugs, as well as biologics and biosimilars, during the initial coverage phase and the catastrophic phase of Medicare prescription drug coverage. Manufacturers will be required to offer a 10% discount in the initial phase and a 20% discount in the catastrophic phase.
• Additionally, starting in 2025, government reinsurance for the catastrophic phase of Part D will be reduced. Medicare’s share of catastrophic spending will drop from 80% to 20% for most brand-name drugs, biologics, and biosimilars and from 80% to 40% for generics. Currently, Medicare covers 80% of drug spending once enrollees exceed the catastrophic coverage threshold.
• These updates realign the prescription drug program to lower Medicare spending and eliminate past incentives that encouraged higher drug costs for plans and manufacturers.
• The law also includes a provision requiring drug manufacturers to pay Medicare rebates if they increase drug prices faster than the rate of inflation.
• These changes ensure a more efficient and sustainable Medicare program, benefiting both current and future enrollees.

The Inflation Reduction Act enhances access to vaccines and lowers out-of-pocket expenses for individuals covered by Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

• Starting in 2023, Medicare beneficiaries with prescription drug coverage will no longer pay out-of-pocket for adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), such as the shingles and Tetanus-Diphtheria-Whooping Cough vaccines.
• Beginning October 1, 2023, ACIP-recommended vaccines will be fully covered at no cost for adults enrolled in Medicaid or CHIP.

Many consumers will continue to see reduced healthcare premiums through 2025 on HealthCare.gov and state-based Marketplaces. This is due to the extension of enhanced financial assistance originally established by the American Rescue Plan.

• The Inflation Reduction Act continues the enhanced financial assistance for purchasing health plans on HealthCare.gov and state-based Marketplaces. This assistance, first introduced under the American Rescue Plan, allows many consumers to save on their health insurance premiums.
• In 2021, individuals enrolled in these plans saved an average of $800 on premiums thanks to the financial help provided by the American Rescue Plan. Without the Inflation Reduction Act, this assistance would have ended in 2022. Instead, it will now remain available through December 31, 2025.
• Consumers will notice these savings reflected in their premiums when shopping for coverage during the Open Enrollment Period, which began on November 1, 2022.