President Joe Biden officially enacted the Inflation Reduction Act on Tuesday. A scaled-down version of the administration’s Build Back Better plan, the massive $739 billion spending package attempts to lower health care prices, decrease the deficit, and fight climate change.
The bill’s ability to stop growing prices for American consumers is dubious, according to experts. The majority of the legislation’s prominent features, such a 15% minimum corporation tax on businesses with annual revenues over $1 billion and a new excise tax on businesses that buy back their own stock, are also unlikely to have a significant impact on the finances of average Americans.
However, some of the bill’s less well-known features may in fact have a significant financial impact on you, saving you up to $10,000 in discounts and tax breaks, for example. Here are three possible financial effects of the measure.
Medications at a lower cost for Medicare recipients
In the next years, the price you pay for some prescription drugs may decrease if you’re a Medicare participant.
The Department of Health and Human Services will have the ability to negotiate pricing for some of the most expensive medications covered under Medicare Part D and Part B, which covers medications given by healthcare professionals (which covers drugs from retail pharmacies).
It will take some time for the negotiations. Starting in 2026, the first batch of pharmaceuticals covered by Part D will have negotiated costs. Included in this are the medications that Medicare patients spend the most money on, many of which have been available since long before there was any generic substitute.
Bank of America analysts listed 25 medications they believe might be targeted under the initiative based on 2020 spending. Medicare negotiations, they claim, could reduce the costs seniors pay for those drugs by 25% in 2026 and beyond.
The continuation of increased health care subsidies
The bill extends the eligibility for more substantial subsidies that were due to expire at the end of the year for households receiving assistance with the cost of health insurance through the public marketplace. Through the end of 2025, the new measure extends the tax benefits on health insurance.
For the millions of Americans whose rates are remaining the same, it is a major deal.
“Without the extension, the vast majority of the 13 million people who get subsidies … would see premium payments rise,” before the law was passed, Krutika Amin, associate director for the Affordable Care Act program at the Kaiser Family Foundation, spoke to CNBC.
The subsidy extension provides significant savings for customers who purchase coverage through healthcare.gov or their state’s exchange, who are often self-employed, unable to obtain employer insurance, or ineligible for Medicare or Medicaid.
Depending on their income, some members may have experienced a more than 50% increase in their monthly rates, according to Amin.
Tax and rebate benefits related to climate
The new law offers incentives for individuals to make energy-efficient home improvements in an effort to combat climate change.
You may qualify for upfront discounts or tax breaks on home energy improvements like heat pumps, rooftop solar panels, or simple weatherization, depending on your income. According to a CNBC estimate, you could be eligible for up to $10,000 in tax credits and rebates.
These incentives might also affect how much you spend for utilities in the long run. According to an estimate by nonprofit research organization Resources for the Future, the typical U.S. household might save between $170 and $220 per year as a result of home energy upgrades and lower commodities prices.
A tax credit already in place for buying “clean” vehicles like electric cars, plug-in hybrids, and vehicles powered by hydrogen fuel cells is also extended and adjusted by the measure. The credit, which can be used to offset up to $7,500 of the cost of a new vehicle, is valid until 2032.
However, if your income or the cost of the vehicle you want to buy exceeds certain limits, you won’t be eligible.
Similar guidelines apply to a credit for used “clean” car purchases that is valued up to $4,000.