Medicare Drug Features in the Inflation Reduction Act: Hints of Single Payer

August 16, 2022

Summary: The Inflation Reduction Act, the scaled-down version of “Building Back Better” now headed for presidential signature, has large health insurance provisions. These include multiple first-ever mechanisms for Medicare to control drug costs for CMS and beneficiaries. Let’s use this exciting set of gains as a stepping stone to single payer.

The Inflation Reduction Act is a Milestone Achievement in Lowering Americans’ Health Care Costs
The Commonwealth Fund Controlling Health Care Costs BLOG
August 15, 2022
By Lovisa Gustafsson & Sara R. Collins

Increasing Access to Prescription Drugs

Through the IRA, Congress sought to make prescription drugs more affordable through reforms that will reduce the price of drugs and limit out-of-pocket costs for many Medicare patients. Currently, prescription drugs account for about 20 percent of Medicare patients’ out-of-pocket health care costs. Spending on prescription drugs continues to grow as other health spending has decreased.

The federal government was prohibited from directly negotiating drug prices in Medicare Part D, the prescription drug coverage program created in 2003. The IRA allows the government, under Medicare Parts B and D, to negotiate prices for 10 drugs with no generic or biosimilar competition starting in 2026, increasing to 20 [additional] drugs by 2029. In addition to lowering drug prices, Medicare negotiations are projected to reduce government spending by approximately $100 billion over 10 years.

The law also institutes inflation caps in Medicare Part D that limit price increases for drugs year over year. They are a response to drug price increases that far exceed inflation. Tax penalties would be levied on drugmakers that increase the prices of their products more than the rate of inflation. The caps are expected to reduce price growth over time.

While these provisions have the potential to help patients who take these specific drugs by lowering their out-of-pocket costs, the 48 million Medicare beneficiaries who get their drug coverage through Medicare Part D may see benefits as well if the lower drug prices translate into reduced Part D premiums.

The IRA also includes several other provisions that directly reduce some Medicare beneficiaries’ out-of-pocket costs. Most notably, it institutes a $2,000 annual cap for beneficiaries’ Part D spending (which currently has no cap), starting in 2025. Once this limit is reached, patients would have no cost-sharing requirement.

How Would the Prescription Drug Provisions in the Senate Reconciliation Proposal Affect Medicare Beneficiaries?
Kaiser Family Foundation (KFF)
Jul 27, 2022
By Juliette Cubanski et al.

The prescription drug provisions in the Senate reconciliation legislation would reduce the federal deficit by $288 billion over 10 years (2022-2031), according to CBO. It would also reduce out-of-pocket spending by Medicare beneficiaries and limit increases in drug prices for Medicare and private insurance.

Requires the federal government to negotiate prices for some high-cost drugs covered under Medicare. Top-spending brands and biologic drugs without generic or biosimilar equivalents that are covered under Medicare Part D (retail prescription drugs) or Part B (administered by physicians) and are nine or more years (small-molecule drugs) or 13 or more years (biologicals) from FDA approval would be eligible for negotiation. The number of negotiated drugs would be limited to 10 Part D drugs in 2026, [plus] 15 Part D drugs in 2027, 15 Part B and Part D drugs in 2028, and 20 Part B and Part D drugs in 2029 …. CBO estimates $101.8 billion in Medicare savings from the drug negotiation provision…

Imposes rebates on drug manufacturers that increase prices faster than inflation to limit annual increases in drug prices for people with Medicare …. From 2019 to 2020, half of all drugs covered by Medicare had price increases above the rate of inflation over that period (1%, prior to the recent surge in the annual inflation rate), and among those drugs with price increases above the rate of inflation, one-third had price increases of 7.5% or more, the inflation rate in early 2022. The inflation rebate provision would be implemented beginning in 2023, using 2021 as the base year for determining price changes relative to inflation. CBO estimates a net federal deficit reduction of $100.7 billion over 10 years from the inflation rebate provision due to both reductions in spending and new revenues….

The Senate Finance Committee legislation also includes several provisions that would reduce out-of-pocket spending for Medicare beneficiaries …

Comment by: Jim Kahn

The Inflation Reduction Act (IRA) provisions for drug cost controls are substantial and laudable. The limits on Medicare Part D cost-sharing are a huge help to beneficiaries. The drug price controls (negotiations and limits to growth rate) are a precedent-establishing foot in the door for regulation. These features echo methods long used in universal coverage plans in other wealthy countries, if less comprehensive in scope.

Other IRA elements are also powerful. The extension of ACA subsidies will help millions. The tax provisions – higher rates and better enforcement – start to mend our tax structure. (And it contains the most ambitious US actions to date to address climate change.)

A dedicated health reform advocate might wonder – do these admirable changes undermine our campaign for single payer, or whet society’s appetite for comprehensive reform?

I’m betting on the latter. It’s easier to sell “Medicare for All” if Medicare is working well — conveying what properly designed health coverage looks and feels like. There are still SO many problems in our health care financing system, especially with private insurance and for the un- and under-insured. There is also much more to do within Medicare, outside of the drug realm, eg lowered cost sharing on all services. Thus, there is SO much to gain via single payer.

The reforms offered by the IRA – most notably the mechanisms for controlling drug costs – provide an enticing hint of the broad protections available for individuals and society with a comprehensive universal health insurance system. Let’s build on this success!