Congress Approves Bill to Cut Drug Prices, Extend Insurance Subsidies for Many Americans

President Biden says he will sign the Inflation Reduction Act to help reduce health costs and promote clean energy.

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people 65 plus could benefit from new bill
Several measures in the bill will cut drug prices for Medicare members.Getty Images

President Joe Biden is expected to sign into law legislation that aims to lower drug prices and extend health insurance subsidies for many Americans.

The legislation, dubbed the Inflation Reduction Act, was approved by the U.S. Senate and the House of Representatives. Biden praised the bill as a win for working families, and he said that there would be a celebration at the White House on September 6 in honor of the legislation.

“This bill caps seniors’ out-of-pocket spending for prescription drugs at $2,000 per year — no matter what their drug bills would otherwise be, seniors will not have to spend more than $2,000,” Biden said in an August 7 statement after the legislation passed the Senate.

“In addition, 13 million Americans, covered under the Affordable Care Act, will see their health insurance premiums reduced by $800,” Biden said. President Biden said he plans to sign the legislation this week.

Health insurance premium subsidies under the Affordable Care Act, often called Obamacare, were set to expire but will now be continued for three years, through 2025, according to a summary of the legislation released by Senate Democrats.

Under the new legislation, many of the health savings are focused on people with Medicare, the U.S. health insurance program for people ages 65 and older. About 60 million Americans have Medicare, far less than the 211 million people with private health insurance, according to the Congressional Research Service.

How the Bill Works for People With Medicare

There are several measures in the bill that will cut drug prices for Medicare members, according to an analysis published in Health Affairs:

  • Cap on Out-of-Pocket Drug Costs?People with Medicare Part D prescription medication benefits will spend no more than $2,000 out of pocket each year on meds, starting in 2025.
  • Insulin Price Cap?This diabetes medication won’t cost more than $35 a month in any Medicare plan, starting next year.
  • Drug Subsidies for the Poor?Some low-income people with Medicare — those who make less than about $20,000 a year — will have a fixed discounted cost for medications, starting next year.
  • Negotiated Drug Prices?For the first time, Medicare will negotiate drug prices with companies, something previously prohibited under federal law. This will initially be focused only on medications dispensed in pharmacies, not expensive biotech drugs administered in doctors’ offices. It will start with 10 medications in 2026, 15 meds in 2027, and gradually increase over time to include even more medicines, as well as some expensive drugs administered at doctors’ offices and hospitals.
  • Tie Price Hikes to Inflation?Drug companies that raise prices faster than the rate of inflation will face financial penalties.

“With this bill, millions of Americans will see lower healthcare costs,” Xavier Becerra, secretary of health and human services, said in a statement after the legislation passed the Senate. “No one should have to go without healthcare or a prescription they need because they can’t afford it.”

A Quarter of U.S. Adults Struggle to Cover Prescription Drug Costs

Roughly 1 in 4 American adults struggle to pay for prescription drugs, according to an April 2022 report from the Kaiser Family Foundation. This is more common when people take four or more different prescriptions. Difficulty affording prescription drugs is less common, however, among adults age 65 and older than for younger and middle-aged adults.

Half of adults struggle to afford their healthcare costs, including medications and other expenses like insurance premiums and copayments for doctor visits, according to a July 2022 report from the Kaiser Family Foundation. Roughly 4 in 10 people delay or skip care altogether because of costs. And about 1 in 4 adults say that they or a family member have skipped filling prescriptions, cut pills, or missed doses because of costs.

Missing medical appointments and skipping prescription refills can be particularly devastating for people with chronic medical problems like diabetes?— a condition that afflicts roughly 1 in 10 people in the United States. In a statement, the American Diabetes Association (ADA) called the insulin copay caps in the new legislation potentially lifesaving and said that other efforts to address health costs will also make it easier for people to get diagnosed and treated for diabetes.

“Uninsured Americans who are at risk for diabetes and its complications are much less likely to receive a diagnosis, and if they do get a diagnosis, they still average 60 percent fewer office visits with a physician and experience 168 percent more hospital visits than their insured counterparts,” Robert Gabbay, MD, PhD, the ADA’s chief scientific and medical officer, said in the statement.

“The expansion of these Affordable Care Act health insurance subsidies will literally save lives of people with diabetes,” Dr. Gabbay said.

Extending premium insurance subsidies for people with Obamacare plans will cost an estimated $64 billion, according to the?summary of the new legislation released by Senate Democrats. However, the prescription drug pricing reforms for Medicare are expected to generate $265 billion, the summary projects.

Overall, Senate Democrats project that the Inflation Reduction Act will reduce the deficit by more than $300 billion. The bill is expected to generate $737 billion, with the drug pricing reforms and several tax measures targeting large companies — including a minimum 15 percent corporate tax and a 1 percent fee on stock buybacks. It also comes with costs of about $437 billion, including a $369 billion investment in domestic energy production and combatting climate change.

The legislation aims to cut carbon emissions by roughly 40 percent by 2030 and reduce consumers’ annual energy bills by about $500 to $1,000, according to the summary released by Senate Democrats. It will also invest in clean-energy manufacturing jobs and pollution cleanup efforts in disadvantaged communities.