How the Inflation Reduction Act will affect Medicare

Yahoo Finance's Anjalee Khemlani breaks down the impacts the Inflation Reduction Act could have on Medicare enrollees should Congress pass it.

Video transcript

AKIKO FUJITA: Well, Kevin mentioned the Inflation Reduction Act that is expected to head to the House, as he said, tomorrow. We want to dive into what it really means for the healthcare industry this time. The bill will impact things like caps on out-of-pocket prescription drugs for people insured by Medicare. Let's bring in Yahoo Finance's Anjalee Khemlnai, who's following that part of the story. Anjalee, we've talked so much about the climate angle of this, but how significant is it going to be for drug pricing?

ANJALEE KHEMLANI: Well, it is and it isn't going to be significant. And I'd love to give you the breakdown. So let's start off with what it is going to cover. It does include a cap on out-of-pocket costs for Medicare. And this is-- really, the key is that it affects Medicare mostly.

So that out-of-pocket cap, $2,000 on Medicare enrollees, down from about 6,000 is what we've seen in recent years. And that only starts in a couple of years. We've noted that of the roughly 63 million Medicare enrollees annually, about 3.6 million have surpassed that out-of-pocket threshold at least once a year from 2010 to 2019, according to the Kaiser Family Foundation.

Meanwhile, there's also drug negotiations starting from next year, but only certain drugs, and that also will not go into effect until later. We also know that vaccines are mostly covered for the elderly. Of course, we've seen that be a really important topic of conversation throughout this pandemic, noting that as you age, you definitely need that protection more.

Also, the big one, insulin capping at $35. And that is a really big one because we know that has been one of the most costly drugs we've heard about people rationing and really some concerns about how diabetics really interact with the drug system and where their drug costs are. And we know that over the past few years, all the three major drugmakers, which make up about 90% of the market, have reduced their costs, but only in part.

Noted on your screen right now, Eli Lilly really at the top there, allowing $35 cap for all individuals and across products. But others have had more limited focus for that $35 cap. Sanofi with that 35 for only the uninsured and Novo Nordisk sticking to that $99 cap that all three had come down to in recent years, and only allowing a $25 cap for Walmart products. So that's really where you're seeing all the movement for this bill. And the potential impact it has really focused on Medicare.

AKIKO FUJITA: Anjalee, really quickly, you know, this has been packaged as an inflation reduction bill. How long until Americans actually see the benefits for drug pricing that are included in this bill?

ANJALEE KHEMLANI: Not too far out. Like I mentioned, most of these have sort of a few years' time gap before going into place, the reduction of certain medications being negotiated. So all of that really told, in the next few years, you'll start to see that impact. But it really is going to be some time before we see what the future potential is. We also know that the pharma industry is looking at legal action to fire back on all of this. So, really, the question is still up in the air.

AKIKO FUJITA: OK, Anjalee Khemlani, we'll be watching that one closely. Obviously, the House set to take up the vote tomorrow.