Extending IRA Inflation Rebates to Commercial Plans Could Save Billions

Mar 20
Mar 20, 2025

Extending inflation-based prescription drug rebates to all commercial health plans, rather than just applying them to the Medicare program, could potentially save as much as $8.1 billion annually, a recent Health Affairs study finds.

The Inflation Reduction Act (IRA) requires pharmaceutical manufacturers to pay rebates to Medicare if they raise prices faster than the rate of inflation for certain drugs. To gauge the effects of extending the program beyond Medicare, researchers analyzed 130 million claims — comprising 16,107 drugs — for 11 million enrollees in commercial plans in 2021. They found that if the IRA rebate program was applied to the entire commercially insured population, savings would be largely driven by a small number of drugs with high total spending.

Under the baseline policy scenario, in which all branded medications costing more than $100 per person per year are included, about 1,110 drugs saw price increases that would trigger rebates — described as “rebatable” drugs in the study. Extending inflationary rebates to all commercial health plans would save $8.1 billion, or 4.1% of total spending on retail prescription drugs.

Compared with the baseline scenario, selections of drugs that had a high base cost or a high total spending yielded between 55 and 530 “rebatable” drugs. The percentage of baseline savings achieved in these scenarios ranged from 49% to 96%.

To minimize the administrative burden, policymakers could restrict IRA rebates to certain high-cost drugs and still achieve substantial savings. For example, levying inflationary rebates only on drugs costing more than $830 per month, or those that are ranked in the top 300 drugs by total spending, could cut the number of “rebatable” drugs in half yet still garner 96% of estimated savings that the IRA’s approach nets.

This infographic was reprinted from AIS Health’s biweekly publication Radar on Drug Benefits.
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Jinghong Chen

Jinghong has been producing infographics and data stories on employer-sponsored insurance, public health insurance programs and prescription drug coverage for AIS Health’s Health Plan Weekly and Radar on Drug Benefits since 2018. She also manages AIS Health’s annual executive compensation database for top insurers and Blue Cross and Blue Shield affiliates. Before joining AIS Health, she interned at WBEZ, Al Jazeera English and The New York Times Chinese. She graduated from Missouri School of Journalism with a focus on data journalism and international reporting.