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Inflation Reduction Act of 2022

April 17, 2023

By Sally McKee

The Inflation Reduction Act of 2022 (“the IRA”) includes important changes to Prescription Drug Pricing Reforms that will impact how Medicare Parts B and D will pay for drugs. Medicare beneficiaries enroll in Part D coverage to meet their prescription drug needs. (Medicare Part B pays for certain drugs but does not offer comprehensive coverage for prescription drugs.) In Florida, approximately 3.6 million are enrolled under Medicare Part D.

The IRA received bi-partisan Congressional support and was part of the White House’s initiative to address the high cost of prescription drugs. The IRA includes the most wide-reaching drug pricing reforms since the inception of the Medicare Part D benefit. The IRA requires a restructuring of the Medicare Part D program and will impact all drug and biosimilar manufacturers by requiring adjustments to their pricing strategies and business models.

The IRA’s provisions are phased in over the next seven years, with the goal to make drugs more affordable to Medicare beneficiaries and to reduce government spending for certain high-cost drugs.

Beginning in 2023, the IRA will:

  • Require drug companies to pay rebates to Medicare when certain drug prices increase faster than inflation.
  • Limit insulin copays to $35 per month under Part D and under the durable medical equipment benefit under Part B. The White House has estimated that more than 230,000 Florida Medicare beneficiaries used insulin in 2020.
  • Reduce costs and improves coverage for adult vaccines under Medicare Part D by requiring a $0 dollar cost-sharing for vaccines. This may impact more than 280,000 Floridians who used the Part D vaccine benefit in 2020.

In 2024, the IRA eliminates the five percent coinsurance requirement for Part D catastrophic coverage. It also expands eligibility for Part D low-income subsidies. In 2025, the out-of-pocket spending cap under Part D is reduced to $2,000. In addition, eligibility for full Part D low-income subsidies will be expanded. These provisions will provide protections to Medicare beneficiaries who have high out-of-pocket costs that are treated with specialty or high-cost brand drugs. It is estimated that more than 100,000 Florida Medicare beneficiaries currently have out-of-pocket expenses under the catastrophic coverage benefit.

The current Part D benefit has four tiers:

  1. Deductible: Enrollee responsible for 100% (approximately $450 in 2022)
  2. Coverage layer: Enrollee responsible for 25% (between approximately $450 to $2,750)
  3. Coverage Gap or Donut Hole: Enrollee responsible for 25% (between approximately $2,750 to $4,500)
  4. Catastrophic layer: Enrollee responsible for 5% (amounts more than $4,500)

Under the IRA, the Part D benefit will have three tiers, with the “donut hole” being completely eliminated:

  1. Deductible: Enrollee responsible for 100%
  2. Coverage layer: Enrollee responsible for 25 percent.
  3. Catastrophic layer: Enrollee responsible for per drug co-pays, subject to the $2,000 out-of-pocket deductible.

This restructuring of the Part D benefit will benefit all Part D enrollees by providing additional protection against higher out-of-pocket costs.

From 2026 to 2029, the IRA implements a process for the Department of Health and Human Services to negotiate prices for certain high-cost drugs covered under Medicare Part D and Part B. The drugs included in this category include newer single-source drugs and biologics, including certain cancer drugs. Nationwide, it is estimated that more than five million beneficiaries use the types of drugs that will become subject to negotiation.

The ability of the Department of Health & Human Services to negotiate drug pricing represents a significant shift in policy because prior law prevented this type of negotiations. The negotiation-eligible drugs will be identified by HHS each year based on the expenditures on this drug in prior years.

Due to the complexity of these changes and the long period for implementation, it is impossible to predict how the provisions of the IRA will impact Medicare beneficiaries, drug research and development and pharmacy manufacturer revenues. The pharmaceutical industry may challenge various portions of the rebates and price control provisions and will play an active role in shaping the regulations that implement the IRA.

Disclaimer: This article is for informational purposes only and is not meant or intended to convey specific legal advice. You should seek advice and counsel from a Florida licensed attorney. This information is not intended to create an attorney-client relationship for any legal matter.


Sally McKee is President of Sally J. McKee, P.A. A member of The Florida Bar since 1997, Ms. McKee has extensive experience with employer provided health benefits and the issues faced by employees who lose access to this coverage. She has represented employers and health plans in COBRA, ERISA, and state law insurance disputes.