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Inflation Reduction Act's Advantages for You

With Congressional deadlock at all-time highs, it’s a wonder anything can get through the government. It was heartening, then, to see Congress pass and the President sign the Inflation Reduction Act into law in August, a bill with provisions to lower seniors’ prescription drug prices and everyone’s energy bills.

Medicare Part D Improvements

The Medicare Modernization Act (MMA) was signed into law in 2003, creating an entitlement benefit for prescription drugs, now known as Medicare Part D. A lot of the IRA’s health impacts are expanding upon and improving this legislation. The IRA lifts the MMA’s prohibition of Medicare leveraging its purchasing power to negotiate favorable prices from drug manufacturers. A Government Accountability Office study found that Part D spends 32% more per unit for prescriptions than Medicaid, which uses a rebate program to negotiate reduced prices. This won’t take effect until 2026, and when it does, only ten drugs’ prices will be subject to Medicare negotiation. But, with 7% of all Part D covered drugs accounting for 60% of its spending, this still has the potential to yield significant cost savings for many recipients and taxpayers generally.

Another cost control provision requires that drug manufacturers pay rebates to Medicare for drugs whose prices increase faster than inflation. From 2019 to 2020, half of all Medicare-covered drug prices increased faster than inflation (1% at the time), and of those, one-third had price increases greater than 7.5%.

Insulin prices for Medicare Part D beneficiaries have been capped at $35 per month starting in 2023. Additionally, the IRA removed cost-sharing for vaccines recommended by the Advisory Council on Immunization Practices, making them free at point of service.

The Act also instituted an annual overall out-of-pocket cap on Part D spending. This starts in 2024, with the elimination of the requirement that enrollees pay 5% coinsurance above the Part D “catastrophic threshold,” capping expenditures at $7,050. In 2025, an explicit cap of $2,000 out of pocket per year will be instituted for all Part D beneficiaries.

Housing & Transportation Investments

Environmentalists celebrated the IRA as a major victory, as the bill is projected to decrease America’s greenhouse gas emissions by about 40% below 2005 levels by 2030. Part of this goal will be achieved through incentivizing consumers to increase renewable energy generation, electric vehicle usage, and energy efficient housing upgrades.

  • Clean Energy Tax Credit: The primary incentive for purchasing residential solar energy systems has been extended. Previously scheduled to phase out through 2023, the full 30% credit for purchasing solar energy generation and other qualified renewable energy generation systems has been extended through at least 2032 and will include battery storage technology starting in 2024.
  • Electric Vehicle Incentives: Consumers who buy a new electric vehicle can get a tax credit of up to $7,500, or they can receive a $4,000 credit with the purchase of a used electric vehicle. Additionally, customers will be able to transfer the tax credit to the car dealer which is then applied as a rebate to the car’s purchase price starting in 2024, allowing customers without the tax appetite necessary to monetize the credit to receive the full discount.
  • Energy Efficiency Home Improvement Incentives: The Act also revives and extends an energy efficiency tax credit for home improvements. Starting next year, the credit will be equal to 30% of the costs for all eligible home improvements made during that year. These deductions are limited to $1,200 per household per year, with $2,000 deductions available for heat pumps.

This credit can be claimed annually through 2032. There is much more contained in the legislation; this is just a list of some of the most relevant highlights. Please reach out to your advisor to learn more and see how you can take advantage of these legislative changes. 

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