Health Provisions of the Inflation Reduction Act of 2022: Opportunities to Maximize the Impact

It’s not a moonshot, but it still offers opportunities for a meaningful launch of underutilized Medicare benefits and exchange-based health insurance coverage.

Omnibus legislation is a tricky thing. It’s grand and encompassing and inspires hopes and dreams of generational change that can address large and stubborn obstacles to societal progress. It’s also an immediate target, susceptible to being picked over, priced into the stratosphere, dismantled. Such was the path of the proposed Build Back Better (BBB) legislation.

For supporters of population health and health equity, here’s the bottom line on its successor — the recently enacted Inflation Reduction Act of 2022 (IRA, Public Law 117-169). BBB would have meant more economic security, access to health insurance, and lower health care costs for a broad swath of low-income people in the United States. Instead, we got a scaled-back version that, while not the stuff of dreams, still has significant potential to meaningfully launch longstanding, underutilized Medicare benefits and exchange-based health insurance coverage.

What’s In the IRA

The IRA includes a number of significant health provisions that will have direct and indirect impact on people at the state level.

Expanded subsidies for health insurance purchased through the ACA exchange

The IRA extends the expanded subsidies that were enacted by ARPA and which would otherwise have sunset as of the end of 2022, for an additional three years (See KFF Table).  These subsidies have improved the affordability of exchange-based plans and demonstrably reduced the national rate of uninsured individuals – a great boon to states given that they help ensure more people have access to coverage and reduce the costs of uncompensated care for health providers.

NOTES: *Lawfully present immigrants whose household incomes are below 100% FPL and are not otherwise eligible for Medicaid are eligible for tax subsidies through the Marketplace if they meet all other eligibility requirements.
**In the COVID-19 relief law, lawfully present immigrants in states that have not expanded Medicaid would continue to be eligible for marketplace subsidies. In addition, people receiving Unemployment Insurance (UI) are treated as though their income is no more than 133% of poverty for the purposes of the premium tax credit. This could extend premium tax credits to some individuals with incomes below poverty.
SOURCE: KFF

Enhanced Medicare prescription drug coverage

The IRA expands eligibility for the federal Medicare Part D Low-Income Subsidy (LIS) Program. While states do not directly administer this benefit, improvements to LIS support millions of individuals who are dually eligible for Medicare and Medicaid benefits and who typically qualify for the Medicare Savings Programs (MSP), which defray premiums and out-of-pocket costs.

Depending on an individual’s financial situation, LIS covers:

• all or some of the monthly prescription drug premium, up to an annual “benchmark” amount (in 2022, $33.37);
• all or some of the annual deductible (in 2022, $480); and
• all or some of the co-payments for which beneficiaries are responsible

Want more information on LIS eligibility? While it has not yet been updated to reflect IRA changes, ongoing please see this great chart produced by the National Council on Aging.

Efforts to control the rate of cost growth in Medicare-purchased drugs

The IRA includes two provisions that endeavor to address the high rate of cost growth for Medicare-purchased drugs. Both have potential to influence the cost of drugs covered by Medicaid.

The first permits the federal government to negotiate the cost of a small number of the “negotiation-eligible” drugs on which Medicare spends the most, as follows:

• 10 Part D drugs in 2026
• 15 Part D drugs in 2027
• 15 Part D and Part B drugs in 2028
• 20 Part D and Part B drugs in 2029 and subsequent years

The second requires drug manufacturers to make rebates if the cost of their drugs increases at a rate greater than inflation.

Lower Medicare Part D cost-sharing

The IRA significantly defrays the out-of-pocket (OOP) spending that Medicare beneficiaries must make on prescription drugs, accelerating their path to federally paid coverage and freeing up income for other basic needs – such as food – that are instrumental to keeping people healthy and avoiding need for Medicaid-funded acute health care.

The IRA provisions include:

• reduced cost sharing, in the form of:
  • elimination of the required 5% coinsurance in the catastrophic period, effective in 2024;
  • establishment of an overall $2,000 OOP spending cap in 2025; and
  • limitations on annual increases in the cost of Part D premiums, over the period from 2024-2030;
• a cap of $35 on cost sharing for insulin products; and
• elimination of cost-sharing for adult vaccines.

Medicaid coverage of vaccines

The IRA also mandates coverage of and eliminates cost sharing for adult vaccines covered by Medicaid and CHIP, reducing cost and administrative barriers to uptake of these vital preventative measures (See KFF Figure).

Three Ways to Optimize the Impact of the IRA

Over and above ensuring that beneficiaries, state partners, and stakeholders understand these new benefits, leaders can also take several actions to maximize their value.

1. Connect the Connectors

Although states continue to be under-resourced for outreach and counseling on health insurance options, even without additional funding, there are untapped opportunities to maximize connections and education among the people who enroll or support state residents in health coverage and services.  These connectors include:

• health insurance brokers who advise people on exchange plans,
• the folks who adjudicate Medicaid eligibility,
• Medicare-focused Administration for Community Living State Health Insurance Assistance Programs (SHIP),
• the state representatives of the SAMHSA Supplemental Security Income/Social Security Disability Insurance Outreach, Access and Recovery (SOAR) initiative, and
• de facto counseling partners including hospitals and FQHCs.

Given that older adults and people with disabilities face many challenges of navigation, people responsible for leading health insurance counseling programs should be talking to one another to identify and understand likely pitfalls of eligibility among exchange coverage, Medicare, Medigap, and the Medicare Savings Programs.

2. Optimize the Use of Medicare-Enabling Federal Benefits

It is well documented that a large percentage of eligible people — most notably, people who experience homelessness and people with serious mental health conditions — never manage to navigate the administrative hurdles to eligibility for Medicare-enabling federal benefits. States have opportunities to address this.

• To increase use of Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI), which entitle a person to Medicare benefits after 24 months of eligibility, state officials and their partners who have not already done so should get training and best practice advice from the technical assistance center for the SAMHSA SOAR initiative. While SOAR focuses particularly on people with mental illness who are experiencing homelessness, its successful strategies around submission of high-quality, complete applications for assistance, as well as support for beneficiaries, are readily transferable to other populations.
• Depending on a person’s financial circumstances, the Medicare Savings Programs (MSP), including the Qualified Medicare Beneficiary Program, Specified Low-Income Medicare Beneficiary Program, and Qualifying Individual Program, defray all or some of the out-of-pocket costs of participating in Medicare and include the Medicare LIS benefit that was expanded by the IRA. To bring up stubbornly low rates of participation in MSP, states should adopt strategies that have been endorsed by the Medicaid and CHIP Payment Advisory Commission (MACPAC), including:
  • adoption of income and resource standards higher than the federal standard (the floor of financial eligibility) – see KFF’s comparison of eligibility standards across states;
  • alignment of LIS standards as the means of determining MSP eligibility at the state level – a little-used option for states; and
  • facilitating annual redeterminations through such means as ex parte.

3. Maximize Health Insurance Coverage Options

While efforts continue to try to build out ACA Medicaid expansion across all states, here are two strategies that states should consider to maximize health insurance coverage for their residents:

• Adopt expanded Medicaid postpartum coverage. If they have not already done so, state officials should examine opportunities to improve maternal outcomes and reduce racial disparities by extending their Medicaid coverage of postpartum care under Medicaid. According to KFF, as of August 25, 2022, the status of state adoption of the ARPA option to expand Medicaid post-partum coverage, from the 60-day period required historically under federal law to one year, was as follows:

• • 24 states and the District of Columbia have already implemented
  • 10 are planning to implement
  • 2 (Texas and Wisconsin) have implemented limited coverage extensions
• Consider Massachusetts-style “wrap-around” exchange coverage. Using an Medicaid 1115 research and demonstration waiver, Massachusetts’ ConnectorCare expands coverage options by wrapping around federally subsidized, exchange-based health plans. The wrap-around plans further reduce cost sharing, provide a standard set of health benefits, and tier beneficiary contributions based on income as a percentage of the FPL. As other states including Connecticut have begun to emulate this approach, leaders should consider a wrap-around approach.

What’s Not in the IRA and What States Can Do

Among other health-related provisions related to social determinants of health, the IRA does not include the BBB proposals detailed below. (For expert commentary on these issues, see this Milbank Quarterly Opinion by Sara Rosenbaum of George Washington University.)

Permanent funding for Children’s Health Insurance Program (CHIP)

BBB proposed making CHIP permanent, and removal of that provision leaves CHIP subject to periodic congressional renewal and the vagaries of the federal budget process. Note that CHIP was last reauthorized in 2018 by the Bipartisan Budget Act (P.L. 115–123) for four years through the end of FY 2027 (September 30, 2027). It will then require renewal.

Eligibility provisions designed to maximize coverage:

• Medicaid “fallback”/look-alike program. This proposal would have created an alternative vehicle through which individuals could qualify for Medicaid-equivalent coverage in states that have not pursued ACA expansion.
• Annual Medicaid and CHIP enrollment periods for children. This proposal for 12 continuous months of coverage had the goal of minimizing migration of children on and off Medicaid and CHIP.
• Extension of Medicaid postpartum coverage from 60 days postpartum to one year. Effective April 1, 2022, Sections 9812 and 9822 of the ARPA enabled states, through March 31, 2027, to extend Medicaid and CHIP postpartum coverage from 60 days postpartum to one year postpartum. This proposal would have made that option obligatory and permanent.

Permanency for increased resources for Medicaid home- and community-based long-term services and supports

This proposal sought to build on the durationally limited enhanced Federal Medical Assistance Percentage (FMAP) for HCBS that was authorized under ARPA. These resources included planning grants, increases FMAP for implementation of HCBS improvements by six additional percentage points, and 80% FMAP for the administrative costs of implementing those initiatives.

Maximining Impact

The IRA is something meaningful, and state policymakers and their partners should make sure they know what it includes. That said, they should also be looking to:

• boost its impact by connecting the connectors, increasing participation in federally covered benefits, and expanding current coverage; and
• take actions to advance pieces that weren’t implemented, including:
  • advocacy around permanency for CHIP;
  • adoption of eligibility and coverage options that support access and continuity; and
  • creating an evidence base for continued investment in Medicaid-funded HCBS.

If we don’t do those things, many older adults and people with disabilities who qualify for newly enhanced supports will continue to go without help, and children will continue to experience gaps in coverage and may not be able to rely on CHIP coverage in the future. Both populations are relying on us all not to let that happen.