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5 ways the Democrats’ inflation bill could lower drug prices for seniors

<i>Adobe Stock</i><br/>The Democrats' health care and climate package aims to lower drug prices in Medicare
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Adobe Stock
The Democrats' health care and climate package aims to lower drug prices in Medicare

By Tami Luhby, CNN

Congress is poised to make the biggest changes to Medicare in nearly two decades.

The Democrats’ health care and climate package, which the House is expected to take up on Friday after the Senate passed it on Sunday, aims to lower drug prices in Medicare, which would save both senior citizens and the federal government money.

The bill would allow Medicare to negotiate the price of certain prescription drugs for the first time and would limit the growth of drug costs. And it would cap how much Medicare enrollees have to pay for certain medications, including insulin.

The effort, however, is much narrower than lawmakers had proposed in the past and largely helps only some seniors and people with disabilities enrolled in Medicare, even though hefty drug costs is a major concern for most Americans.

Fewer drugs would be subject to negotiation than Democrats had previously envisioned, and the reduced prices would not be available to the private insurance market as they had hoped.

Also, the caps on price growth and insulin costs would only apply to Medicare because the Senate parliamentarian decided that broadening it to the commercial market would violate the rules of reconciliation, which the chamber used to pass the package with a simple majority vote.

Still, the bill is an important step to addressing the high cost of medications that plague millions of senior citizens, experts said.

“This landmark bill would make prescription drugs more affordable for Medicare enrollees,” said Thomas Waldrop, health care policy fellow at The Century Foundation.

The drug measures are also expected to save the federal government $288 billion over a decade, according to the Congressional Budget Office.

Opponents say that the provisions would hurt research and innovation in the US drug market and do little to help consumers struggling with high health care costs. While the CBO estimates that only about 15 fewer drugs would be introduced over the next 30 years, the pharmaceutical industry argues the true number would be much higher.

“They say the bill won’t harm innovation, but various experts, biotech investors and patient advocates agree that this bill will lead to fewer new cures and treatments for patients battling cancer, Alzheimer’s and other diseases,” Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, known as PhRMA, said in a statement Sunday about the Democrats.

Here are five ways the bill would help senior citizens:

Allow Medicare to negotiate drug prices

The bill would empower Medicare to negotiate the prices of certain costly medications administered in doctors’ offices or purchased at the pharmacy.

The Health and Human Services secretary would negotiate the prices of 10 drugs in 2026, and another 15 drugs in 2027 and again in 2028. The number would rise to 20 drugs a year for 2029 and beyond. Only medications that have been on the market for several years without competition are eligible.

This significant provision would be a first step in the Democrats’ long-standing goal of allowing Medicare to use its heft to lower drug prices, experts say.

Medicare has been banned from negotiating the price of medications since Congress created the Part D drug benefit in 2003. The Department of Veterans Affairs has more control over the prices it pays for drugs, while in Medicaid, drug companies are required to provide discounts in exchange for having their medications covered by the program.

How much negotiations would help reduce costs for patients depends on which drugs are chosen and how much of a deal Medicare can obtain. Expensive medications that could be eligible include those used to treat cancer, diabetes, autoimmune diseases and cardiovascular conditions, among others.

Limit on Medicare out-of-pocket drug costs

The bill would place a cap on Medicare’s Part D drug plans so that seniors and people with disabilities wouldn’t pay more than $2,000 a year for medications bought at the pharmacy, starting in 2025. Folks could also spread out the costs over the course of a year.

Some 1.4 million enrollees in Medicare drug plans spent at least $2,000 out of pocket for medications in 2020, according to the Kaiser Family Foundation, which called the estimate “conservative” since the number has likely risen since then. The cap would be particularly helpful for those who need high-cost drugs for conditions such as cancer or multiple sclerosis.

Other estimates say even more people could be helped by the cap.

The legislation would also revamp Medicare’s catastrophic drug coverage. Currently, after beneficiaries spend more than $7,050 out of pocket for medicine, they pay 5% of subsequent costs without limit. Medicare covers 80% and insurers pay 15%.

If the legislation is enacted, beneficiaries would have no out-of-pocket costs after they spend $2,000 on medication. Medicare would cover 20% for brand-name drugs and 40% for generic drugs. Insurers and manufacturers would be on the hook for the rest.

However, limiting what enrollees spend out of pocket on medications bought at the pharmacy could prompt insurers to raise premiums on Part D plans, which might hit a wider swath of seniors. Anticipating this, lawmakers included in the bill a provision that would restrict premium increases to no more than 6% a year from 2024 through 2029.

“It’s hard to know exactly what the premium effect will be,” said Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, noting that other provisions in the package would keep drug price growth in check.

Restrict growth in drug prices to inflation

The legislation would also require drug companies to pay rebates if they hike their prices in Medicare faster than inflation. The provision would start in 2023.

The rebates would be deposited in the Medicare trust fund that helps finance the Part D program, as well as the Part B program, which covers physician services.

This provision would help slow the annual increase in drug prices.

Cap insulin prices at $35

Medicare enrollees who take insulin would pay no more than $35 a month starting next year, under the bill.

Some 3.3 million Medicare beneficiaries used insulin in 2020, double the number in 2007, according to a KFF analysis. But total Part D spending on insulin quadrupled during that period.

Patients spent an average of $54 per insulin prescription and about $572 a year in 2020, KFF found.

But some folks had to shell out much more. Some 10% spent more than $1,300 and 1% spent more than $2,300, according to KFF. These beneficiaries generally took more than one insulin product and used more expensive formulations of the medication.

Provide more help to more low-income beneficiaries

The bill would make more enrollees in Medicare Part D plans eligible for the low-income subsidy program, starting in 2024.

Currently, only seniors with incomes up to 135% of the poverty level qualify for full benefits, which means they have no premiums or deductibles and are responsible only for small copays.

The legislation would expand the full benefits to those with incomes up to 150% of the poverty level — about $20,600 a year for a single person and $27,700 for a couple. These folks currently qualify only for partial benefits.

This measure would greatly help elderly Black and Hispanic Americans, who are more likely to currently receive partial benefits than White Americans, Waldrop said.

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