The last few years have been difficult for almost everyone. On top of the pandemic, rising prices have been bruising up bank accounts — and many people’s finances, not to mention dreams, are suffering. But the Inflation Reduction Act of 2022 aims to ease some of the pain, including certain healthcare costs.
With the immediate impacts to prescription drug costs and the implications for other healthcare expenses, what can advisors tell their clients to expect? Let’s go over a few notable talking points.
How will the inflation reduction act lower prescription costs?
This is especially relevant for those approaching retirement or already enjoying those golden years. For Medicare beneficiaries with prescription drug coverage, the Inflation Reduction Act will phase in a cap for out-of-pocket costs and establish a $35 cap for a month’s supply of insulin.1 That yearly cap will be $2,000 starting in 2025.2 And, for the first time in its history, Medicare will be able to negotiate prices for high-cost drugs.1
Drug manufacturers will also be required to pay Medicare a rebate if they increase drug prices faster than inflation.3 Inflation has been a major pain point across the globe for the past year plus, so this change in particular may come as a bit of welcome relief — especially once the rate of inflation itself eases.
Health insurance premiums
The Inflation Reduction Act is also set to assist with health insurance premiums through HealthCare.gov and state-based Marketplaces.2 For those who benefit from the Affordable Care Act, this act will extend health insurance subsidies.1 That could mean health insurance premiums stay right where they are for an additional three years.
Relief in retirees’ healthcare spending?
Numerous studies and surveys have shown that healthcare expenses are among the top expenditures retirees have in their later years, and the Inflation Reduction Act of 2022 appears to be offering relief in some of those areas.
With that being said, it’s insulin costs, prescription drug costs and certain premium expenses that will be addressed with this act. That’s only a portion of what people — retirees in particular — have to worry about in terms of health expenses. There are still plenty of costs associated with Medicare that retirees should anticipate and manage their finances accordingly in preparation.
Healthcare expenses retirees may face
In 2022, Medicare Part A (also known as Medicare’s Hospital Insurance) costs included:4
- A free premium for most people who paid or had a spouse who paid Medicare taxes long enough while working, or a way to buy in with a premium of $274 or $499 each month ($278 or $506 in 2023), depending on how long the Medicare beneficiary or their spouse worked and paid Medicare taxes
- A $1,556 deductible ($1,600 in 2023) for each inpatient hospital benefit period before Medicare begins to cover the expenses
Meanwhile, Medicare Part B (also known as Medicare’s Medical Insurance [doctor visits, outpatient services]) costs included:4
- A $170.10 premium each month ($164.90 in 2023) (or higher depending on the beneficiary’s income)
- A $233 deductible each year ($226 in 2023) before Medicare starts to pay
- 20% coinsurance of the approved Medicare amount for doctors’ services during an inpatient stay after the annual deductible has been met
Those are just a few of the costs Medicare beneficiaries still have to consider. So, while the Inflation Reduction Act of 2022 is expected to assist in a few areas, there remain numerous expenses retirees and their families will still be responsible for when receiving medical care.
How to help clients plan for medical expenses
Let your clients who rely on Medicare or expect to sign up for it soon know about what the Inflation Reduction Act is bringing to the table in terms of certain healthcare caps. In general, it’s a good idea to have discussions with your clients about current Medicare and other insurance laws so they’re always in the loop.
It’s also vital to set realistic expectations for what they may need to spend for healthcare. Medicare isn’t free and neither are many of the services beneficiaries can receive while enrolled. Often, health expenses can take people by surprise, especially as they grow older and need care more frequently.
Have a check-in with their accounts and their current assets. Should they consider moving money into savings to prepare for increased healthcare expenses? Might they be better off pumping the brakes on some of the spending they’re doing in other areas? Social Security payments alone probably won’t cover it all.
These are the important conversations to have with clients as they near retirement or continue on their retirement journey.
For a deeper dive into Medicare, please click the link below and take a look at our helpful guide, Understanding Medicare.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.
