Health care provisions in the IRA legislation

Health care in the US is a mess because of its dependence on an employer-based insurance model and the adamant opposition of the health care providers (insurance companies, hospitals, doctors, and other providers) against a national single payer system that would streamline the system and cut costs. Since all those interests lobby heavily against any changes and are willing to pour money into politicians’ campaigns, what results is a tinkering of the system in order to smooth out some of the roughest features. Obamacare was one such effort and the latest legislation that is due to be passed later this week known as the Inflation Reduction Act also makes some progress.

The bill sets out to reduce Americans’ medical costs in two main ways. First, it uses federal subsidies to reduce the cost of both health insurance and prescription drugs. Second, the bill gives Medicare officials the power to negotiate with pharmaceutical companies, which will likely reduce the price that the companies charge for those drugs.

For these reasons, the bill is effectively an effort to use the health care system to reduce economic inequality, much as Obamacare was. The bill’s benefits will flow overwhelmingly to poor, working-class and middle-class families. Its costs will be borne by increases in corporate taxes (which ultimately fall on shareholders, who skew wealthy) and reductions in the profits of pharmaceutical companies.

Here are the bill’s main provisions:

  • It allows Medicare officials to negotiate over drug costs, giving companies less freedom to set high prices. That measure will mostly reduce Medicare’s spending, rather than families’ out-of-pocket costs — and, by extension, will reduce the federal budget deficit. But there will probably be spillover into out-of-pocket costs, especially for people in Medicare.
  • The bill sets a $2,000 annual cap on the amount of money that any senior pays for drugs. After somebody hits that cap, a combination of the federal government, private insurers and drug companies will pay the remaining bills. Today, drugs for cancer, multiple sclerosis, rheumatoid arthritis and some other diseases can cost people much more than $2,000 a year. The new provision will take effect in 2025 and will save a small percentage of older Americans thousands of dollars a year.
  • The bill caps out-of-pocket insulin expenses at $35 a month for people in Medicare; many now pay more than $50 a month. The bill also makes adult vaccines free for both seniors and people in Medicaid, starting next year. The shingles vaccine, to take one example, now often costs more than $50.
  • For middle- and lower-income people who buy private health-insurance plans through the Obamacare exchanges, federal subsidies will increase for three years. This change will help about 13 million people. A typical person in this situation now pays about $80 a month in premiums, thanks to temporary funding from Biden’s Covid relief bill. The price was set nearly to double next year but now will remain roughly the same, according to Krutika Amin of Kaiser.

As you can see, the main beneficiaries are those on Medicare, i.e. seniors, which is the one part of the current health care system that resembles a single payer system. The next beneficiaries are those who have private health insurance. The glaring omissions consist of those who do not have any health insurance at all, who usually belong to the lower-income groups.

One of the features that was eliminated during the negotiations was a $35 per month cap on insulin prices for everyone. It was in the original bill but the senate parliamentarian said that it dod not qualify to be included under the budget reconciliation rules that require only a simple majority to pass. Senator Raphael Warnock then introduced an amendment that would keep the cap but now it required 60 votes to avoid the filibuster and only seven Republicans voted in favor of it and so it failed, reaching only a 57-43 margin. The cap still applies to people on Medicare.

Diabetes is a serious and widespread health issue in the US affecting 11% of the population, and the cost of insulin is prohibitively high in the US compared to other countries where the governments can negotiate with the drug companies to lower prices.

Of those roughly 34 million Americans who have diabetes, more than 7 million require daily insulin. Without it, uncontrolled diabetes can lead to blindness, kidney failure, loss of limbs and ultimately death. 

Yet the price of the insulin hasn’t been affordable in the U.S., with drug companies charging some of the highest prices for insulin compared to other countries — sometimes five to 10 times higher. 

An analysis by the RAND Corporation found that between 2012 and 2016, Americans aged 18 to 64 with employer-sponsored health insurance went from spending $1,432 on insulin to $2,853. 

Put another way, in 2018 the average price per standard unit within the different types of insulin products in the U.S. ranged from $73 up to $119 — while other countries like Canada, the U.K. and Australia charged less than $10 per unit.

That’s partially due to the insulin market here in the U.S., which is dominated by just three companies: Eli Lilly, Novo Nordisk and Sanofi. Though insulin was discovered nearly 100 years ago, the process of making it is more complex than other medications, which has resulted in little competition and rising consumer prices. 

Congress tried to step in with legislation that would simply cap the cost that drug companies and health insurance providers could charge for insulin — bypassing the issue of biosimilars — but failed.  

Some states have intervened with their own insulin copay cap legislation, like Maine which has a law limiting insulin costs to $35 for a 30-day supply for state-regulated commercial health insurance plans. West Virginia, Utah, Washington, New York and three other states have passed similar legislation. 

Insulin is a cash cow for those companies that make it and they are determined to eliminate any provision that set a cap on those prices and they succeeded and they got Republicans to do so.


  1. Katydid says

    Back in the late 1990s, I fostered a cat who was diabetic. I got his insulin (the same as human insulin because nobody makes insulin for animals) from the local grocery store pharmacy for $10/vial. I brought in a prescription from the vet, and the pharmacist would hand over a vial whenever I needed a new one. I probably paid cash.

    Just two decades later, the same vial would be upward of $300.

  2. consciousness razor says

    It allows Medicare officials to negotiate over drug costs, giving companies less freedom to set high prices. That measure will mostly reduce Medicare’s spending, rather than families’ out-of-pocket costs

    To be clear, this is not “drug costs” (all of them or in general), as this quote suggests. Also, that part doesn’t start to become effective until 2026.

    The process starts with a short list of drugs that cost the government the most, in the preceding year. Then (I suppose under the HHS secretary) they’re supposed to negotiate with manufacturers for new prices on the ten most expensive ones. (No telling what the result of that “negotiation” may be. It’s not a plan to cut prices by X% or anything of the sort.)

    Then, over the following years, little by little, it will end up being a few more drugs, then a few more, until eventually, the party is over. I didn’t see anything that goes beyond 2031, since they never think long-term. (As if ten years is “long,” but you know what I mean.) Many of the legislators probably won’t be alive much longer anyway, and neither will their elderly voter base, so their brains just can’t do it. By design, people who are not baby boomers are still fucked, as is tradition.

    Anyway, it’s the usual, Joe Manchin-approved, “deficit reduction” nonsense. It’s definitely not focused on lowering the costs that (eventually) some consumers will have to pay on the many thousands of different drugs that people have to take. I’m sure with some imagination you might be able to guess what happens to premiums, copays, deductibles, and so forth. It’s certainly not the case that these corporations will just decide to make less profit.

    There’s also a weird provision in it that I don’t understand, creating an exclusion regarding total expenditures when a drug is “bundled or packaged into the payment for another service.” Presumably, there are some drugs that only come that way (or will in the next few years). I have no idea … chemotherapy or something like that perhaps? In which case, this is intended to prevent those from making the cut. But I’ve seen no reporting on it; that’s just something odd that I noticed while skimming through that part.

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