How does the Inflation Reduction Act affect Medicare?

The rebranded Build Back Better act, known as the Inflation Reduction Act, was signed by President Biden in 2023. It sought to deal with the then high inflationary pressures in the US economy by dealing with some aspects of high healthcare costs. The US spends the most on healthcare in the world with health expenditure costing 16.6% of GDP.

There are provisions relating to Medicare. Addressing many issues like the rampant price of drugs has long been a Democrat aim and the bill goes some way to addressing this with caps on prices on certain drugs while also giving long-term help to the system itself to negotiate better prices to reduce costs, though not all of these benefits will kick in immediately.

Here are some of the most important changes the bill made to Medicare.

Medicare can finally negotiate its own drug prices, but not yet

The act allows Medicare to negotiate for the price of prescription drugs starting in 2026. At present, the country’s largest healthcare provider cannot negotiate the price of drugs it purchases, leaving prices at the whim of drug providers. Much like the National Health Service in the UK, Medicare will now be able to drive down the price of drugs it purchases, potentially increasing options for senior medication at cheaper prices.

From 2026, 10 drugs will be on the list with an additional 15 the following year with 20 more each year after.

Caps on drug prices and expenses

There are also new limits on out of pocket expenses for drugs, which will be limited at $2,000 a year from 2025. In 2019, 1.5 million seniors spent more than $2,000 on prescriptions, according to the Kaiser Family Foundation. 400,000 more Medicare beneficiaries are expected to be eligible for the Low Income Subsidy. This is an aspect of the Obama-era Affordable Care act which will make it cheaper for those buying their own healthcare.

Medicare enrollees are further protected in terms of insulin. The price of insulin has been capped at $35 per month.

This was to be rolled out for all Americans that have private insurance but this was voted down by Republican senators, drawing the ire of many. Before it could cost between $175 and $300 for a vial of insulin, of which most need at least three a month. 35 million Americans require insulin due to health issues.