How Americans will benefit from the Inflation Reduction Act

President Joe Biden’s signature Inflation Reduction Act will benefit Americans by lowering drug prescription and energy costs. 

Economic analyses suggest that the new law won’t directly address the price of gas, food and rent, some of the main factors in surging prices.

But the legislation that received final approval Friday in the House could save money for many Americans over time by lessening the cost of certain prescription drugs for the elderly, extending health insurance subsidies and reducing energy prices.

Pennsylvania Congressman Dwight Evans (D-PA-3rd) who voted for the landmark Inflation Reduction Act said the new bill will help with the cost of health insurance.

“The bill extends enhanced Affordable Care Act subsidies for 13 million Americans for three years, to 2025. The average enrollee will save an estimated $800 per year on premiums. “Thanks to Obamacare, the uninsured rate is at a record low, and the subsidy extension will prevent an estimated 3 million people from becoming uninsured,” Evans said in a statement.

 “This is … a bill that lowers prescription drug costs for seniors who receive Medicare,” U.S. Sen. Bob Casey (D-Pa)  said at a news conference on the steps of the Pennsylvania Capitol after the Senate passage of the bill. “So many people told us, for years, we couldn’t do that.”

The new law is also the most ambitious climate change proposal ever passed in Congress.

The vote was along party lines, with a tie-breaking vote by Vice President Kamala Harris. Not a single Republican in the Senate or the House voted for the bill.

The legislation would spend $70 billion over a decade to extend tax credits to help 13 million Americans pay for health insurance under the Affordable Care Act.

Those subsidies would free up money for recipients to spend elsewhere, potentially increasing inflation, although the effect would likely be very small, according to economists.

While the bill could have the benefit of increasing the savings of millions of households on pharmaceutical and energy costs, it’s unlikely to have much effect on overall inflation. Prescription drugs account for only 1% of the spending in the U.S. consumer price index; spending on electricity and natural gas makes up just 3.6%.

Starting in 2025, the act will cap the amount Medicare recipients would pay for their prescription drugs at $2,000 a year. It will authorize Medicare to negotiate the cost of some high-priced pharmaceuticals. It would also limit Medicare recipients' out-of-pocket costs for insulin at $35 a month. Insulin prescriptions averaged $54 monthly in 2020, according to the Kaiser Family Foundation.

“This is a historic change,” said Leigh Purvis, director of health care costs at the AARP Public Policy Institute. “This is allowing Medicare to protect beneficiaries from high drug prices in a way that was not there before.”

A study by Kaiser found that in 2019, 1.2 million Medicare recipients spent an average of $3,216 on drug prescriptions. Purvis said recipients who use the most expensive drugs can spend as much as $10,000 or $15,000 a year.

The legislation authorizes Medicare to negotiate prices of 10 expensive pharmaceuticals, starting next year, though the results won't take effect until 2026. Up to 60 drugs could be subject to negotiation by 2029.

Holtz-Eakin argued that while the provision may lower the cost of some Medicare drugs, it would discourage the development of new drugs or reduce new venture capital investment in start-up pharmaceutical companies.

The Inflation Reduction Act's energy provisions could also create savings, though the amounts are likely to be much smaller.

The bill will provide a $7,500 tax credit for new purchases of electric vehicles, though most EVs won’t qualify because the legislation requires them to include batteries with U.S. materials.

The legislation also significantly expands a tax credit for homeowners who invest in energy-efficient equipment, from a one-time $500 credit to $1,200 that a homeowner could claim each year. Vincent Barnes, senior vice president for policy at the Alliance to Save Energy, said this would allow homeowners to make new energy-efficient investments over several years.

The Rhodium Group estimates that by 2030 the bill's provisions will save households an average of up to $112 a year as gas and electricity becomes cheaper as more Americans drive EVs and houses become more energy- efficient.

Irv Randolph is the managing editor of the Philadelphia Tribune, the nation’s oldest continuously published African American newspaper in the nation and co-founder of The Randolph Report, a newsletter on politics, culture and career and professional news relevant to Black Americans.