US healthcare: proposed cap on insulin prices lost, health insurance subsidies still in

The US government is moving new rules for healthcare insurance and drug pricing though the legislative process as part of a larger stimulus package called the Inflation Reduction Act of 2022. This bill apparently just passed the Senate (it still has to get through the House of Representatives, where there is considerable disquiet about it’s paucity in the ruling party):

Unfortunately on the way through the process one item of the health care changes, a cap on the price of insulin for private patients, was removed. The loss is mentioned in the above article and is covered in more detail here:

What’s happened is that it was determined that the price cap on insulin required a 60-40 vote in the senate rather than a simple majority that the rest of the bill required. The opposition party agreed to the price cap for diabetics on Medicare (seniors/pensioners) but not for the rest of the population who buy private insurance (I’m not sure about people on Medicaid; the US government system that provides health care to people close to the poverty level).

So that’s the bad news. The good news is that the all important health insurance subsidy for people who buy their own insurance is still going to be granted to people with middle income levels. Originally the subsidy was only available to people who earned less than four times the poverty level, above that, even by a single US dollar, and the subsidy was lost. Last year and this year the “cliff” was replaced by a gradual phase out (the subsidy reduces by 8.5% of income over the old limit).

I’m 62 and married. We are self-employed so we are required to buy health insurance; we buy the cheapest we can. In 2021 the cost for the year was $20,000. The cost in 2020 was $17,500 for a similar plan (the cheapest). In both years we made more than 4x the Federal Poverty Level and that meant that we got no subsidy in 2020, but in 2021 we received a subsidy (as a tax credit) of $15,000. Indeed we didn’t pay any (Federal) tax last year, so the subsidy was entirely refunded to us.

For people who are close to the 4xFPL level the effect is even more staggering. For a married couple the FPL was $17,240 in 2021, so the limit would have been $68960. So long as you made less than this you got the subsidy and it worked to reduce your health insurance premiums for a standard plan to 8.5% of your income. Many people found that if they got a cheaper (but still adequate) plan the subsidy would completely cover the cost (it can’t be more than the cost :wink: With an income of 4xFPL where I live in Oregon the subsidy would have been $18,165.40 for the whole year. With an income (US AGI) just $1 more; $68,961, the entire subsidy disappears.

This is why the limit was a disaster. A self employed couple making $5,746/month gets $18,165 of fully refundable tax credit - the subsidy. That’s the equivalent of over 3 months pay. The same couple making $5,747/month gets nothing. So what did you do if your income amounted to $68,000 at the end of October? You stopped working; if you keep working you end up making $81,600 in the year on which you pay tax and get no subsidy. If you stop you get $68,000 of income plus the subsidy, a total of $86,000. You also pay less tax on $68,000 than you do on $81,600 (assuming it is earned income).

To put it another way; you would have had to pay $4,400 for the privilege of working through November and December.

The bill that was passed included a three year extension (i.e. 2023-2025) for this replacement of the income limit for the subsidy with a phase-out:

There’s also a three-year extension on healthcare subsidies in the Affordable Care Act originally passed in a pandemic relief bill last year, estimated by the government to have kept premiums at $10 per month or lower for the vast majority of people covered through the federal health insurance exchange.

The real surprise in there, however, is a plan to allow the CMS (the government department which administers the US health care systems) to start to negotiate drug prices. See " Lowering the cost of prescription drugs" in the above article and NPR’s more in-depth coverage here (note that this was written before the insulin price cap was removed):

This is potentially a game changer; if it isn’t removed by future governments it has the potential to remove the incentive to mark up drug prices in the US. The main reason for the marked up price is to force the US health care schemes, Medicare and Medicaid, to pay the marked up price; insurers get a rebate on the price and, with care, people without insurance sometimes can too.

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The House passed the bill on August 12:

I explained about about how significant the subsidy change is for some of us (older, self employed), but the CMS drug negotiation part is still a little mysterious:

[T]he negotiations won’t provide relief until 2026 when the renegotiated prices on ten of the program’s most expensive drugs take effect.

But:

HHS can only negotiate prices for drugs that Medicare Parts B and D spend the most money on and have been on the market for years without any generic or other competitors, according Mulcahy.

So that excludes all the insulins with the possible exception of Fiasp (for which there is currently no generic).

If you read through the details you will see it is a symbolic victory; it won’t change the prices of the day-to-day drugs like insulin or asthma inhalers where the presence of generics doesn’t lower the price because the generics are provided by the same people as make the brand names.

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