The Inflation Reduction Act has been signed into law. While the bill has many different provisions, we are specifically interested in how it will impact the cost of health insurance for 2023 and beyond. The bill will use 100’s of billions of dollars to extend already boosted levels of subsidies for many Americans until 2025. But what level are subsidies currently at?
Subsidies from the American Rescue Plan in 2021
You must start with the Affordable Care Act (ACA or “Obamacare), then follow up with The American Rescue Plan Act (ARPA) which passed in March of 2021. The ARPA was a $1.9 trillion stimulus package that contained a mix of benefits, tax credits, programs, and subsidies in response to the continuing COVID-19 pandemic. One of the main parts was that it increased government benefits found in Obamacare. The ACA made premium tax credits available to people purchasing health coverage on the Marketplaces, but generally only when their incomes fall between 100% and 400% of the federal poverty level. The ARPA (COVID-19 relief) law expands Marketplace subsidies above 400% of poverty and also increases subsidies for those making between 100% and 400% of the poverty level, for two years (2021 and 2022) set to end in 2023. Generally, these limits were set at 8.5% of their income for a benchmark plan. These additional subsidies will yield substantially lower premium payments for the majority of the nearly 15 million uninsured people who are eligible to buy on the Marketplace and the nearly 14 million people insured on the individual market. Most of these 29 million people could see lower health insurance premiums as a result of these subsidies, and many could also afford lower deductible plans. However, it was far from certain how many people will take advantage of the financial assistance.
Inflation Protection Act and Subsidies
Fast forward to the present in August 2022 and the Inflation Reduction Act (IRA). One of the provisions of the new Inflation Reduction Act concerns the subsidy extension. Currently, medical insurance premiums under the ACA/ARPA are subsidized by the federal government to lower premiums. These subsidies granted through the ARPA, which were scheduled to expire at the end of this year, will be extended through 2025. According to the U.S. Department of Health and Human Services, approximately 3 million Americans could lose their health insurance if these subsidies weren’t extended. But nothing new was done here, just an extension of existing health care law until 2025. It doesn’t lower prices, It just allows the federal government to pay for more of health care costs. This will result in many people being able to get cheaper insurance.
The other notable health provision of the Inflation Reduction Act concerns Medicare prescription drug price reform. This topic has been discussed on this forum before – see “Medical Pricing Bill: Who wins? Who loses?”. To recap, the medical pricing part of the Inflation Reduction Act will allow Medicare to negotiate the price of certain prescription drugs which should bring down the price beneficiaries will pay for their medications but will stifle innovation in the prescription drug industry and possibly retard the introduction of new and promising drugs. Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, but not starting until 2025.
The practical results of the Inflation Reduction Act means that many people will have the opportunity for reduced prices for their health insurance. Many people will be eligible for plans from as low as $0 until 2025! For individuals who are not eligible for coverage through their work or for small businesses under 50 employees, individual and family plans offer a really great opportunity for savings.