What is the Inflation Reduction Act (IRA)?
The Inflation Reduction Act (IRA) is a U.S. law enacted in August 2022, primarily aimed at addressing climate change, reducing healthcare costs, and increasing tax equity. The IRA is designed to tackle inflation through a mix of measures that aim to reduce the federal deficit and lower costs for Americans, while also promoting clean energy and energy security.
Changes to Medicare with the Inflation Reduction Act (IRA)
If you are a Medicare recipient, or if you have loved ones on Medicare, there are some key things you need to know coming out of the Inflation Reduction Act (IRA). First, there are some positives for Medicare recipients coming from the IRA.
One positive that should be received with great applause from those who have a Medicare Part D (drug) plan is the removal of the dreaded Coverage Gap, also known as the Donut Hole.(I can hear the cheers now!) This is long in coming and will be met with both relief and joy. This is the gap at which point medication costs could increase dramatically in the middle of the year for seniors. That will be gone for 2025.
Second, overall drug costs will be capped at $2,000 for 2025. For those who take expensive medications, this will also be met with relief. Once your out-of-pocket costs hit that amount, your copays for the rest of the calendar year will be $0! (There are occasions in which seniors will not even need to hit $2,000 for their copays to be $0, but let’s not get into the weeds in this article.)
Third, those with a Medicare drug plan will be able to go on a payment plan if they wish. That means that, instead of paying a lot of money in the beginning of the year while working through a deductible, for example, individuals can, instead, set up a payment plan to spread the costs over the year which could make things more affordable for them.
However, with the good comes, well, you know. After all, the IRA (Inflation Reduction Act) is taking a significant amount of money from Medicare. The amount that will be taken from Medicare for 2025 is $722 million! Combine that number with the amount taken from Medicare in 2024, and you have over a billion dollars! (That is a billion with a B!) The number has not yet been revealed for 2026, which is the third phase of the IRA, but suffice it to say that with that amount of reduction from Medicare, other changes will be coming.
There is a cost shift taking place with Medicare. The federal government (Medicare) is placing more of the costs upon insurance companies. Of course, what happens when insurance companies face more costs? They further shift costs upon consumers. In fact, they must either do that or reduce benefits, both of which will be coming.
For example, premiums for 2025 drug plans will be increasing significantly. And Advantage Plans will have to reduce some benefits, as well as (in some cases) increase copays. Also, look for higher premiums on Medicare supplements in 2025.
Furthermore, some companies offering Medicare drug plans are eliminating compensation for agents. While this may not seem to affect you, it could if the agent with whom you work chooses your drug plan based on the compensation he gets. In that case, it could mean that, instead of getting the drug plan that will save you the most money, you may be getting the drug plan that will pay your agent. (However, that is not how we work at Claeys Group. We will always recommend the very best plan for you.)
McKinsey and Company, which provides clients with analysis-backed recommendations addressing complex business problems across industries and functions, has analyzed the effect the IRA will have on Medicare. According to their analysis, the Medicare program is undergoing the biggest shift in decades.
So, be thankful for the good coming out of the IRA. But don’t be surprised when you see higher premiums and less benefits in Medicare programs in 2025 and 2026. Accept the good and brace for the rest.
Claeys Group Insurance Services, LLC is an independent agency, specializing in Medicare Supplements and Medicare Advantage Plans, enriching clients by putting their needs first.
