What’s at Stake for California Health Care Affordability in the Inflation Reduction Act?

Miranda Dietzand Laurel Lucia

Updated September 26, 2022: The Inflation Reduction Act was signed by President Biden on August 16, 2022. This blog post has been updated to reflect an amendment Congress made to the drug rebate provision before the IRA passed. Additionally, discussion of state-financed affordability help to reduce how much Covered California enrollees pay out-of-pocket when they access care was removed because that state policy will not be implemented in 2023.

The Inflation Reduction Act (IRA) currently being considered by Congress would improve health care affordability for many Californians by addressing high and rising drug prices and by extending the improved premium affordability assistance to Covered California enrollees that began in 2021.

Prescription drug affordability

The IRA would enact long-sought federal actions on prescription drug prices, addressing a major health care affordability concern for many Californians. Almost half (49%) of California adults reported being very or somewhat worried about being able to afford prescription drug costs, according to a California Health Care Foundation survey conducted in 2021. 

The IRA would enable the federal government to negotiate prices paid by Medicare for certain high-cost drugs, reversing the current federal prohibition on negotiations. The bill would also require drug manufacturers to pay rebates if drug prices paid by Medicare grow faster than inflation. The IRA includes financial protections for Medicare Part D beneficiaries such as capping out-of-pocket drug spending and eliminating cost sharing for adult vaccines, and would expand eligibility for Medicare Part D subsidies based on income.

Covered California affordability

The IRA would extend enhanced federal health insurance premium subsidies through exchanges like Covered California for three years, through 2025. These subsidies, currently set to expire at the end of 2022, were first provided in 2021 under the American Rescue Plan to build on the Affordable Care Act. The enhanced federal subsidies reduced premiums for Covered California subsidized enrollees by 20%, on average, and provided federal subsidies to Californians with income above the ACA eligibility limit so that all eligible families buying coverage through an exchange would pay no more than 8.5% of income for a benchmark plan. The ARP premium subsidies provided $1.7 billion dollars per year in assistance to Californians, and enrollment in Covered California grew to a record high of 1.8 million people in 2022. These enhanced federal premium subsidies addressed long-standing premium affordability concerns with ACA coverage and improved the affordability of coverage at a time of economic turmoil and personal vulnerability during the COVID-19 pandemic. 

If Congress passes the IRA, 220,000 more Californians are projected to be insured in 2023, compared to if only the original ACA premium subsidies were provided, according to our UC Berkeley-UCLA CalSIM projections. As a result, the IRA would help protect the progress California has made in moving towards universal coverage. Premium costs will be half of what they would be under the original ACA provisions, on average, for the lowest income enrollees (those with income below 250% FPL) and would decrease substantially across all income levels, according to Covered California calculations.


The IRA would take important steps towards improving prescription drug affordability, especially for Medicare beneficiaries. If passed, the IRA would also help Covered California enrollees maintain the more affordable premiums that began in 2021 and protect the state’s progress in moving towards universal coverage. Millions of Californians would experience improved ability to afford health care if the proposed health care provisions in the IRA are enacted.