The Inflation Reduction Act — a bill meant to provide key funding for clean energy investments and measures to reduce prescription drug costs — has now been signed by President Joe Biden.
The legislation was crafted as a compromise between Senate Majority Leader Chuck Schumer and Sen. Joe Manchin (D-WV), who nixed a more expansive version of the bill last December. Though smaller than that bill, dubbed Build Back Better, the Inflation Reduction Act will have a tangible effect on the average American.
Despite the name, the bill won’t immediately lower inflation, but it should mean lower drug costs for those with Medicare, cleaner air (some estimates put emissions reduction at 40 percent by 2030), stable health care premiums for millions, and significant savings on power bills for most Americans, among other things.
Here’s what the bill could mean for you.
Will inflation really get better thanks to this bill?
One big question is whether a bill called the Inflation Reduction Act will lower the decades-high inflation numbers that consumers are feeling at the grocery store and the gas pump.
As economists told Vox’s Li Zhou, the average American likely won’t feel the impact immediately or particularly significantly — its effect will be in a longer-term and macroeconomic sense.
“For the most part, this isn’t a bill about 2022,” Marc Goldwein, the senior policy director at the Committee for a Responsible Federal Budget, told Vox. “This is about 2023, 2024, 2025. It’s about helping the Federal Reserve to fight against persistent inflation. It’s not gonna be bringing down the inflation rate in the month of September.”
Shai Akabas, the director of economic policy at the Bipartisan Policy Center, explained that “there’s very little that policymakers can do, certainly on a legislative basis, to impact inflation overnight. That is primarily the job of the Federal Reserve.”
The Fed has increased interest rates, which essentially raises the cost of borrowing money to slow spending, but any decision the central bank makes about fiscal policy will also take time to affect the system overall. And as Vox’s Emily Stewart explained, that’s likely to be painful for consumers in the short term — the cost of mortgages and credit card debt will go up, hiring will probably slow, and there’s also the looming possibility of a recession. This is, however, all in the hope of setting up a more stable economy in the future.
There are some measures in the bill to ease the burden of inflation when it comes to fuel and energy costs. Although the price of a gallon of gas has eased in part due to federal actions like releasing oil from the Strategic Petroleum Reserve, the bill contains measures to open up avenues for drilling and fast-tracking pipeline construction to increase the available supply — thereby lowering costs for the average consumer.
Additionally, the bill will allow Medicare to negotiate for cheaper prescription drug prices for certain very expensive medications and cap out-of-pocket prescription costs for Medicare beneficiaries at $2,000 per year. That unprecedented measure will lower the cost for consumers. A further measure requires pharmaceutical companies to pay a rebate to Medicare if they raise drug prices faster than inflation increases, NPR reported — presumably disincentivizing those companies from repeated price increases.
The bill’s non-inflation measures are significant, too
The IRA may not immediately push prices down to pre-Covid levels, but it represents some significant steps forward for dealing with crushing health care costs and the existential threat of climate change.
In addition to cementing Medicare’s new negotiating power, the bill also holds insurance subsidies for the Affordable Care Act through 2025, making health insurance more affordable for the millions of people who are insured through the health care marketplace. The initial subsidies were supposed to end this year, which would have meant increased premiums for the millions of people who qualified for free health insurance when Congress eliminated the income cap to qualify for federal assistance paying premiums.
The IRA also includes the largest-ever investments in climate change mitigation efforts, clean energy production, and climate justice programs, all designed to mitigate harmful effects of climate change in underserved areas.
Although climate activists have expressed frustration with the bill’s compromises on oil and gas drilling, an analysis from Schumer’s office determined the climate provisions would lower greenhouse gas emissions by 40 percent from 2005 levels by 2030. “It doesn’t get us all the way there on its own, but it keeps us in the climate fight,” Jesse Jenkins of Princeton University’s REPEAT project, which studies the impact of government policy on climate change, told NPR last month.
While much of the financial incentives for pursuing clean energy and climate change mitigation are geared toward companies, there are rebates and tax credits available for people buying clean energy sources like heat pumps and rooftop solar panels. Those measures are aimed at making clean energy more available to more people, although solar panels, for example, cost about $11,000 in 2021 for a household setup.
The legislation also offers a $4,000 tax credit for low- and middle-income drivers to buy a used electric vehicle, and up to $7,500 for a new electric vehicle. Additionally, a study by the Rhodium Group estimates that the bill’s provisions will save households an average of $1,025 per year by 2030.
Some of the funding is aimed specifically at low-income and vulnerable communities. For example, the legislation sets out $1 billion in grants to improve energy efficiency in affordable housing. It also provides at least $60 billion in grants for projects like improving air quality monitoring, improving transportation, and deploying clean energy in low-income and vulnerable communities, as well as enhancing climate resilience in public housing and for tribal and Native Hawaiian communities.
Even though all of these measures are in place, there is no question that the environmental actions and funding aren’t enough. The bill provides far less than what’s actually needed: a total system overhaul. It will be years before these programs will be implemented and pay off in the form of lower greenhouse gas emissions, better health outcomes for low-income communities, and improved clean energy infrastructure. However, it’s hard to deny that the IRA provides a glimmer of hope that it’s possible to start addressing some of the most pressing problems — including overwhelming health care costs and climate change.
Update, August 16, 4:03 pm: This story was originally published on August 7 and has been updated to reflect new developments, including most recently that President Joe Biden signed the Inflation Reduction Act.