by Jamie DeMarco and Vincent DeMarco
The numbers are in. The Inflation Reduction Act has, in fact, helped to reduce inflation. The most recent numbers from the Federal Reserve show year-over-year inflation standing at just 3%. When the Inflation Reduction Act was passed one year ago, inflation stood at a whopping 9%. The legislation helped achieve this dramatic decline through specific policies to reduce costs in two critical sectors of the economy: energy and health care.
In July 2022, a spike in oil and gas costs from the war in Ukraine caused U.S. energy prices to increase 32% in a single year, one of the single biggest drivers of overall inflation. Then tax credits in the Inflation Reduction Act made it possible for the first time to buy a new long-range all-electric vehicle for under $20,000. As a result, electric car sales jumped 63% this year and more Americans than ever are driving on electricity, which is half the cost of gasoline per mile traveled. More electric cars on the road reduces the demand for oil, which lowers the cost of gasoline for everyone.
The Inflation Reduction Act has worked similar magic in helping record numbers of people own solar panels and install more efficient, electric appliances. All told, someone who utilizes all the tax credits in the act will save on average $1,800 in reduced energy bills a year. As a result, over the past year, U.S. energy prices have actually decreased 17%, even though the war in Ukraine rages on. This abrupt U-turn in energy costs did not happen by accident. It was caused in large part by the Inflation Reduction Act.
The same is true with health care costs. At this time last year, Americans were watching their health care costs climb quickly, peaking at 6.0% inflation in September 2022. Today, however, health care inflation has fallen to a mere 0.13%.
The Inflation Reduction Act helped to bring down inflation in the health care sector through a series of policies. It capped the cost of insulin at $35 per month for Medicare participants. It will also eliminate coinsurance in Medicare for catastrophic coverage and Part D vaccines; cap total out-of-pocket costs for Medicare drugs at $2,000 annually; and allow Medicare to negotiate fair prices for the 10 top-selling drugs.
And it’s not just the elderly who benefit: The IRA requires drug companies to offer rebates when prices rise faster than inflation, and it continues the enhanced premium subsidies for Affordable Care Act plans originally put in place under the American Rescue Plan which helps millions of Americans afford their health care.
Of course, rising interest rates have also contributed to reductions in inflation, but interest rates are a blunt tool that also cause pain, as anyone who has obtained a mortgage in the past year could attest. In contrast, the price saving policies of the Inflation Reduction Act do not hurt consumers and are very precise. The data show that the sectors of the economy targeted by the legislation have seen inflation fall faster than the economy as a whole, evidence that the new law is working as intended.
There is still more work to do, particularly at the state level. On health care, we need to make sure that those who are not on Medicare can afford high-cost drugs.
On energy, we need to move forward with clean energy proposals and ensure we have the funds necessary to adapt to climatic changes that are already inevitable. At the national level, we are thrilled that Sen. Chris Van Hollen is pursuing his We Paid Act to make sure that we don’t pay twice for high-cost drugs whose research was funded in large part by federal dollars.
With the Inflation Reduction Act, President Joe Biden and Vice President Kamala Harris and the Democrats in Congress fulfilled a vision for bringing down inflation while investing to expand our climate response and strengthen our health care system. The benefits of this consequential law — in a cleaner environment, healthier citizens, and a lower cost of living — will continue to flow for many years to come.
