Medicare Will Take a Hit From the Inflation Reduction Act

The largest cut of the total funding begins in 2030, and the offsets aren’t enough

Letter to WSJ.

"In his letter (Dec. 2), Matthew Fielder attempts to refute our conclusion that the Inflation Reduction Act will result in higher premiums and lower benefits in Medicare because of the law’s funding cuts (“The Inflation Reduction Act Comes for Medicare,” op-ed, Nov. 22). He argues that the law cuts in some areas but has full and permanent offsets in the form of enhanced premium subsidies. In fact, the statute provides for offsets for the transition years 2025-29, but those offsets are neither complete nor permanent. The Inflation Reduction Act’s largest cut of the total funding begins in 2030, but large cuts will occur in the transition years, too.

Regarding 2030 and beyond, beneficiaries are mandated to pay at least 20% of premiums, which puts a low ceiling on how much premium subsidies can offset the other cuts. Regarding the transition, the offsets are (without changes in bids or benefits) limited to what seniors pay in premiums, which currently is only about $12 billion annually—far short of the $30 billion reinsurance cut effective 2025. The Congressional Budget Office estimates only $5 billion in annual offsets during the transition.

We expect that the sharp federal cuts to plan revenues will result in higher premiums, lower benefits and plan exits beginning in 2025. That the Inflation Reduction Act also shifts patient cost sharing to plans only strengthens this expectation. Even if we assume, contrary to fact, that the federal cuts didn’t begin until 2030, we don’t expect plans to wait until 2030 to make their adjustments.

Prof. Casey B. Mulligan

Prof. Tomas J. Philipson

University of Chicago"