Aug, 16, 2022

Healthcare Provisions in the Inflation Reduction Act: Implications for States

Sabrina Corlette, Georgetown Center on Health Insurance Reforms

On August 16, President Biden signed the Inflation Reduction Act (IRA), a $740 billion reconciliation package, into law. The IRA includes significant climate change and deficit reduction policies, as well as provisions to improve the affordability of healthcare for Medicare and Affordable Care Act (ACA) Marketplace enrollees. However, several significant healthcare policies included in the House-passed Build Back Better Act were left out of the IRA.

Extending Enhanced ACA Premium Tax Credits and Lowering the Cost of Prescription Drugs in Medicare

The IRA extends for an additional three years (through 2025) the enhanced Marketplace premium tax credits (PTCs) provided under the 2021 American Rescue Plan Act (ARPA). Specifically, ARPA increased the PTCs available for Marketplace enrollees by reducing the percentage of income that individuals and families contribute towards premiums for plan years 2021 and 2022. Under the enhanced premium schedule, families with incomes between 100 and 150 percent of the federal poverty line had their premium contribution reduced to $0. Families with incomes over 400 percent of the federal poverty line became eligible for subsidies for the first time, with their premium contribution capped at 8.5 percent of family income. See Table.

Table. Maximum Income Contribution Percentage by Household Income under the Affordable Care Act and the American Rescue Plan Act

Income Range (Percent of Federal Poverty Level)

Range of Maximum Income Distribution

(Percent of Income)

Under Affordable Care Act

(2014, original schedule)

Under Affordable Care Act

(2021, after annual inflation adjustments)

Under American Rescue Plan




























The ARPA enhanced premium tax credits were temporary, and absent congressional action would have expired at the end of 2022. Aside from extending the ARPA premium tax credit enhancements for three additional years, the IRA makes no other substantive changes. For state officials, the IRA’s extension of the tax credits provides much-needed policy certainty as health insurers finalize their premium rates for 2023 and the state-based Marketplaces prepare for fall’s open enrollment.

Many health insurers sought to modestly increase their 2023 premiums because of the expiration of the ARPA premium tax credit enhancements. These insurers projected that healthier individuals would be more likely to disenroll when they lost the extra subsidy, resulting in a smaller, costlier risk pool on the Marketplaces. If the IRA is passed by the U.S. House, state insurance departments may ask these insurers to reduce their rates to reflect the extension of the ARPA subsidies. For Marketplaces, the extension of the subsidies allows them to move forward with critical messaging to enrollees and communications campaigns for the upcoming open enrollment season.

The IRA also includes a number of policy changes to Medicare. It would allow the federal government to negotiate pharmaceutical prices with drug manufacturers on behalf of enrollees. The bill would also require drug companies to pay a rebate if drug prices rise faster than inflation in the Medicare program, and cap out-of-pocket spending on drugs for Medicare enrollees.

Unfinished Business

The IRA does not include numerous healthcare provisions that were in the Build Back Better (BBB) Act that could have had significant implications for states. A few of the most notable policies left out of the package include:

  • Filling the Medicaid Gap. BBB would have temporarily extended Marketplace subsidies to individuals under 100 percent of the federal poverty line in the 12 states that have not yet expanded Medicaid.
  • Postpartum BBB would have permanently required state Medicaid programs to provide 12 months of postpartum health coverage.
  • Continuous Coverage for Children. BBB would have permanently required state Medicaid programs to provide 12 months of continuous coverage for children.
  • CHIP Funding. BBB would have made federal funding for CHIP permanent.
  • Medicaid Funding for the Territories. BBB would have provided a permanent, significant increase in federal Medicaid funding for Puerto Rico and the other territories.
  • Home- and Community-based Services. BBB would have provided states the option of permanently receiving a 6-percentage point increase in their Medicaid matching rate for home- and community-based services for Medicaid enrollees with long-term care needs, if they improve and expand home and community-based services.
  • Insulin Affordability. The BBB would have required insurers to cover certain insulin products and exempt them from enrollee deductibles and limit cost-sharing.

It is unclear at this time whether Congress will pursue an additional reconciliation package before the end of 2022, and if so, whether any of the above policy options would be considered. In the meantime, the IRA provides state officials with long-anticipated policy stability—and consumers with much needed premium relief—as they plan for the 2023 enrollment season.