Biden signs bill that extends ACA subsidies through 2025, makes drug price reforms

Updated at 4:50 p.m. on Aug. 16

President Joe Biden has signed the Inflation Reduction Act into law, cementing major drug pricing reforms and extended subsidies for plans on the Affordable Care Act exchanges.

The $430 billion legislation includes a slew of polices targeting healthcare and climate change, and aims to give Democrats a boost ahead of the midterm elections later this year.

“The American people won, and the special interests lost," the president said.

The House has passed a major spending package that includes key reforms to drug prices and extends enhanced Affordable Care Act subsidies for another three years. 

The House on Friday passed by a vote of 220 to 207 the Inflation Reduction Act, sending the bill to President Joe Biden, who is expected to sign it into law. The legislation grants Medicare the power to negotiate prices for a small subset of drugs and introduces other reforms such as a cap on Part D drug costs. 

Once signed by Biden, the bill would extend enhanced subsidies that helped spark a record 14.5 million sign-ups for the 2022 coverage year. The subsidies—passed as part of the American Rescue Plan Act in 2021—ensured that some low-income exchange customers paid nothing in premiums. However, the subsidies were set to expire unless Congress had acted. 

Some insurers had already filed double-digit rate hikes for 2023 in anticipation of the subsidies going away.

Now, the subsidies are set to be in place through 2025, once Biden signs the bill into law. In addition to the extension, the bill includes several key reforms to drug prices. Chief among them is a long-sought Democratic priority to give Medicare the power to negotiate for lower drug prices.

Starting in 2026, Medicare has the power to start negotiating drug prices for 10 pharmaceuticals in Medicare Part D drugs. That number will eventually increase to 20 by 2029 and incorporate drugs in Parts B and D. 

The drugs selected for negotiation must have been on the market for at least nine years or 13 years for biological drugs. 

The bill also overhauls the Part D drug benefit. It installs a $2,000 out-of-pocket cost cap for Part D beneficiaries. It would also install an inflationary cap on Part D drug prices to limit price hikes and creates a $35 cap on insulin costs. 

Part D plans should also prepare to shoulder a greater share of costs for spending in the catastrophic coverage phase. 

Currently, when a beneficiary’s drug spending reaches a certain threshold, they reach a catastrophic phase. Medicare covers 80% of the beneficiary’s drug costs after reaching the cap, with the Part D plan covering 15% and the beneficiary the remaining 5%.

However, the bill would raise Part D plan liability from 15% to 60%.