How the Inflation Reduction Act Could Benefit You
With all the murmurs of an impending recession looming on the horizon, one only has to look to the steady rise of inflation to discover a possible root cause. Knowing how the potential adverse consequences of a recession could compound the economic woes coming out of the pandemic, the U.S. government recently passed The Inflation Reduction Act of 2022. This historic bill seeks to lower the deficit, address climate change, and decrease healthcare and drug prices.1 Here are some of the potential benefits the average American family could see as a direct result of this legislature.
Reduced healthcare costs and prescription drug prices
The rising costs of healthcare have been a thorn in the side of the American people for decades. With the passing of legislative efforts such as the Affordable Care Act, the U.S. government has been looking for effective ways to reverse the trend. And those efforts are better realized with The Inflation Reduction Act. This new bill will address prescription drug costs, healthcare costs, and access to care. The less Americans spend on necessities like prescription drugs, the more they’ll be able to save or reallocate those dollars to other expenses. In the face of a recession, every dollar counts.
Saving money with lowered prices for insulin and other drugs
The continued high costs of insulin and other potentially life-saving drugs have been a key part of calls for healthcare reform for years. With this new bill, hope for change is on the horizon. The legislation reverses a 2003 non-interference clause in Medicare Part D that banned the federal government from interfering in drug price negotiations between the manufacturers and the plan sponsors.2 Now, CMS (Centers for Medicare and Medicaid Services) will be required to negotiate for certain prescription drugs under Medicare starting in 2026.3 The impact will be far-reaching: 5-7 million Medicare beneficiaries could see their prescription drug costs go down because of the provision allowing Medicare to negotiate prescription drug costs.4
And the relief can’t come soon enough. Today, 68% percent of uninsured patients pay the full list price for insulin, and are more likely to be using older, less costly — and therefore less effective — formulations of insulin.5 How dire is that situation financially? Currently, the cost of insulin for patients with insurance ranges from $334 to $1,000 a month.6 But under the new bill, starting in 2025, a month's supply of covered insulin products will be capped at $35.3 A quick comparative look at those numbers reveals the monthly savings will be significant.
In addition, the new bill will require drug manufacturers to issue rebates to CMS for brand-name drugs without generic equivalents beginning in 2025.3 As important as these savings are, the new bill doesn’t stop at prescription drugs.
Save more with lower Medicare costs and capped out-of-pocket amounts
As more Americans approach the age of retirement, they worry about their savings ability to keep up with the rising rate of inflation. This is especially true when it comes to healthcare costs. The new bill stems the tide in their favor, however, in several different ways.
The most notable savings for retirees or those close to retirement will come via lower Medicare costs. In fact, the new legislation eliminates beneficiary cost-sharing above the annual out-of-pocket spending threshold under the Medicare prescription drug benefit beginning in 2024 and caps annual out-of-pocket spending at $2,000 in 2025.3 Considering the average out-of-pocket amount spent among Medicare part D beneficiaries in 2019 was $3,216, the annual savings of $1,200 will be welcome relief.7
The Inflation Reduction Act also provides a way for beneficiaries who have incurred costs above their annual deductible to get discounts from drug manufacturers.3 Providing even more hope, people worried about their insurance premium subsidies running out this year will find that they have been extended through 2024.8
This bill provides financial relief with huge savings in medical costs that are almost too numerable to list. However, the legislation set its scope even broader, also making provisions for those Americans interested in embracing green energy initiatives and reducing energy costs and their environmental impact.
Long-term savings with clean energy homes and electric vehicles
With the passage of The Inflation Reduction Act, the burgeoning opportunities in green energy will be accessible to more American families.
Make energy upgrades to your home
The savings start with clean energy and electric vehicle tax credits. Families taking advantage can expect to save over $1,000 per year.4 Those savings can be compounded when families make upgrades to their houses that boost energy efficiency. For example, the bill makes provisions for $14,000 in direct consumer rebates for families to buy heat pumps or other energy-efficient home appliances, saving families at least $350 per year.4
Families will also want to take advantage of the provided incentives for installing solar. According to the bill, 7.5 million more families will be able to install solar on their roofs with a 30% solar tax credit, saving $9,000 over the life of the system or at least $300 per year.4 On average, U.S. customers save about $1,500 a year by going solar, which averages out to anywhere from $10,000 – $30,000 over the life span of the panels.9 Plus, there’s an intrinsic value to adding solar panels as well. Because they are viewed as an upgrade, homes equipped with solar see an increase in value of about $15,000 on average.10
Big savings on new and used electric vehicles
Increasing the adoption of electric vehicles is also a focus of the new bill. Families purchasing an electric vehicle can expect tax credits of up to $7,500 for a new electric vehicle and $4,000 for a used electric vehicle.4 Those tax credits could add up to a potential savings of $950 per year.4 There’s also a bonus savings built-in to an electric car purchase as well. Not only will buying an electric car with tax credits save you money versus the gas-powered automobile you might already have been thinking of buying, but you will also save money by avoiding the pump. As gas prices continue to remain high across the nation, those savings can’t be easily dismissed.
The Inflation Reduction Act, backed by 126 leading economists, aims to fight inflation and support strong, stable economic growth.4 With so many initiatives bringing so much anticipated financial relief to so many millions of struggling Americans, the new bill promises to deliver hope in the face of economic uncertainty. But it will only realize its full potential if Americans are proactive and willing to help themselves by plugging in to the programs it offers.
Things to consider
If you are retired or close to retirement, check how much you could save in Medicare costs.
Consider adding energy efficient upgrades like solar panels to your home if appropriate.
Next time you’re looking for a new or used vehicle, think about taking advantage of tax credits for electric vehicles.
1 “Summary: The Inflation Reduction Act Of 2022,” Senate.gov, August 2022
2 “What to Know About Medicare Drug Price Negotiation,” AMA-Assn.com, August 2022
3 “H.R.5376 - Inflation Reduction Act of 2022,” Congress.gov, August 2022
4 “By The Numbers: The Inflation Reduction Act,” Whitehouse.gov, August 2022
5 “Insulin’s Out-Of-Pocket Cost Burden to Diabetic Patients Continues to Rise Despite Reduced Net Costs to PBMs,” Forbes.com, August 2022
6 “House Passes Bill to Limit Cost of Insulin to $35 Per Month,” WebMD.com, August 2022
7 “Potential Savings for Medicare Part D Enrollees Under Proposals to Add a Hard Cap on Out-of-Pocket Spending,” KFF.org, August 2022
8 “The Inflation Reduction Act Is Now Law—Here’s What It Means For You,” Forbes.com, August 2022
9 “Solar Energy Questions,” ConsumerAffairs.com, August 2022
10 “Benefits of Residential Solar Electricity,” Energy.gov, August 2022
The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
