‘Federal Inflation Reduction Act’ is big boon to California

California is poised to benefit strongly from the federal Inflation Reduction Act, a massive, hard-fought and newly passed package meant to address healthcare, climate change and myriad other issues across the county.

Following a year of heated negotiations and a rebranding of Biden’s social spending efforts, the key part of the Democratic Party’s legislative agenda was signed into law last month.

About 90% of the over 1.7 million enrollees have been receiving these subsidies and will now continue to do so through the end of 2025.

The mammoth bill, which involves hundreds of billions of dollars and was supported by Democrats and opposed by every Republican in the House and Senate, will take effect over the next decade.

The question in California is, “What does it really mean for the Golden State?”

Here are some answers:

Health care
One of the biggest impacts the IRA will have on California health care is the extension of subsidies for insurance policies in the Covered California marketplace. About 90% of the over 1.7 million enrollees have been receiving these subsidies and will now continue to do so through the end of 2025.

These subsidies ensure that those making below 150% of the federal poverty level, or $19,320 for an individual, pay no premium and those above that percentage have their premiums capped at 8.5% of income for all enrollees.

According to Health Access California, this extension protects the average Californian from a potential 83% increase in premiums, which would be over $1,000 a year on average.

This affordability assistance has led 200,000 more Californians to enroll in health coverage and eliminated the “subsidy cliff” that many middle-class families faced.

Rachel Linn Gish, communications director for Health Access California, pointed to how detrimental this cliff was, saying, “people would one day get a raise at work and the cost of their health insurance would go through the roof.”

Just last month, SB 944 passed the Legislature, allowing for the elimination of deductibles and lower out-of-pocket costs for those in Covered California.

Importantly, the idea of middle-class subsidies is not new to California.

In 2020, a year before the American Rescue Plan made them available nationwide, the state became the first to offer this kind of assistance.

While the federal subsidies were larger than what the state provided, California presented the model for the nation’s subsidy assistance program.

Another example of California’s role as a leader on health care policy in the IRA is the banning of pay-for-delay tactics, which is where drug companies attempt to block the introduction of cheaper, generic alternatives to their products. The state Legislature passed a similar law in 2019.

The state continues to pave the way in this policy area, recently moving to allow all Californians, regardless of immigration status, to qualify for Medi-Cal by 2024 and attempting its own enormous prescription drug reform policy.

Just last month, SB 944 passed the Legislature, allowing for the elimination of deductibles and lower out-of-pocket costs for those in Covered California.

Gish partially attributes this achievement to the passage of the IRA.

Additionally, the bill caps insulin payments at $35 dollars a month, saving money on copays for over 332,000 Californians.

“There is a big interaction between what is happening at the federal level, with how much premium subsidy assistance they are providing, and what California can then do to continue to lower the cost of care to Californians outside of just premiums,” she said.

 Another important group that stands to gain a lot from the IRA is California’s roughly 6.6 million Medicare beneficiaries, especially when it comes to drug costs.

It does this by allowing Medicare to negotiate lower drug prices for 20 of the most expensive medications by 2029. If private insurers take advantage of this and incorporate these new Medicare prices into their own negotiations, this policy has the potential to save money for more than just the program’s beneficiaries.

Additionally, the bill caps insulin payments at $35 dollars a month, saving money on copays for over 332,000 Californians, and limits premium increases for Medicare Part D to 6% per year from 2024 to 2029.

Other effects for those on Medicare, according to the Kaiser Family Foundation, include:

–Making more low-income people eligible for Medicare Part D by providing more discounted premiums and drug prices to an estimated 24,000 Californians.

On a broader level, the IRA will help the United States reduce greenhouse gas emissions in the United States by an estimated 31% to 44% by 2030.

–A $2,000 annual limit on out-of-pocket costs for prescription drugs for those in Medicare Part D. This change, set to take effect in 2025, could help the 115,000 Californians who spent more than $2,000 on drugs in 2020.

–Ensuring vaccines for older adults are all free. This would benefit an estimated 460,000 Californians.

Climate and Energy
 As in health care, California is addressing climate change, recently passing a series of bills meant to bolster its goals. The funding and financial incentives in the Inflation Reduction Act will go a long way towards helping ensure these goals are met, experts say.

On a broader level, the IRA will help the United States reduce greenhouse gas emissions in the United States by an estimated 31% to 44% by 2030, according to a report by the Bipartisan Policy Center.

For consumers, an assessment from the think tank Resources for the Future estimates it will save families approximately $170 to $220 annually and reduce electricity price volatility in the future.

One of the biggest impacts it will have is on the state’s goal of banning gas-powered vehicles by 2035. The bill will help achieve this through tax credits of up to $7,500 for new electric and hybrid cars and up to $4000 for used ones.

The IRA raised the federal solar tax credit from 26% to 30%, meaning that those who install solar systems can get 30% of that money back from their taxes

However, there are certain eligibility requirements such as income caps, the car’s price, and battery and supply chain stipulations that will limit who and what qualifies.

These credits are sure to make electric vehicles more affordable to the average consumer and create incentives for manufacturers to make a quicker transition away from fossil fuels.

A last-minute addition to the bill was $4 billion in funding for drought resilience. This relief money will go towards water conservation projects, ecosystem restoration efforts, and compensating users for their efforts to reduce their water use.

The extra funds were championed by senators from Western states, which have been experiencing the worst megadrought in 1,200 years.

In addition to drought, California has been dealing with increasingly terrible wildfires. The IRA addresses this by providing over $2 billion in funding for wildfire management for federal forests, which makes up nearly 60% of the state’s total forestlands.

Bill Allayaud, head of California Government Affairs for the Environmental Working Group, says that the utility companies are weaponizing the Inflation Reduction Act.

Another major effect this legislation will have on the state is regarding solar energy. California has the largest solar industry in the nation, producing enough power for over 9 million homes and being responsible for nearly 25% of the state’s energy, according to the Solar Energy Industries Association.

The IRA raised the federal solar tax credit from 26% to 30%, meaning that those who install solar systems can get 30% of that money back from their taxes. This is in addition to any local rebate programs and credits earned from the state’s net energy metering program, or NEM, which allows those with rooftop solar to sell their surplus energy back to the grid at the retail rate.

The program has been the subject of heated debate going back to a proposal from last year to slash credits and introduce an additional charge for solar-equipped homes.

Kathy Fairbanks of the Affordable Clean Energy Coalition, a campaign funded by utility companies like PG&E, has argued that the system is unfair because it subsidizes wealthier customers who can afford solar panels and raises the costs of electricity on lower income utility customers.

“With more generous federal subsidies flowing to the solar industry, it is now indefensible for renters and low-income Californians to continue to pay higher electricity bills simply to pad the projected profits of publicly traded rooftop solar companies,” Fairbanks noted.

Bill Allayaud, head of California Government Affairs for the Environmental Working Group, says that the utility companies are weaponizing the Inflation Reduction Act at a time when we should be incentivizing more people to go solar.

He says the NEM decision should make it so people start to see returns on solar in the short-term and “allow for a reasonable monthly charge to be connected to the grid but not one that will make people back off, which proved to be the case in Nevada.”