New law reduces drug prices for seniors

SANDUSKY — Drug prices for seniors will be reined in under legislation approved by Congress and recently signed into law by President Joe Biden.

The AARP, which had lobbied for the changes, reported in the September AARP Bulletin that the Inflation Reduction Act, as Democrats dubbed the measure, could save older Americans billions of dollars in drug costs.

According to the AARP, the new law will set an annual limit of $2,500 for out-of-pocket drug costs for about 50 million Medicare enrollees who have Part D prescription drug coverage. The annual limit takes effect in 2025.

The AARP also says the law imposes tax penalties on drug companies that raise drug prices more than the inflation rate. The cost of Medicare-covered insulin is capped at $35 a month, and out-of-pocket costs for most vaccines under Medicare are eliminated.

Premiums for Part D drug insurance plans won't rise more than 6 percent a year through at least 2029.

One important provision of the new law is that the federal government, leveraging the bargaining power it has from the huge amounts of drugs it purchases for Medicare, will begin negotiating the price of ten high-cost prescription drugs in 2023. The number of drugs whose prices are negotiated goes up to 15 in 2027 and 20 in 2029.

Negotiating prices for drugs purchased for Medicare is a goal that's long been sought by Democrats.

The resulting reduction in revenue for drug companies, however, is one of the more controversial provisions in the law because it is expected to result in fewer new drugs being developed. A 2020 study estimated that the average cost of getting a new drug on the market is $1.3 billion.

The Congressional Budget Office estimates that the reduction of new drugs coming onto the market will be only a few a year.

"CBO estimates that under the bill, the number of drugs that would be introduced to the U.S. market would be reduced by about 2 over the 2023-2032 period, about 5 over the subsequent decade, and about 8 over the decade after that. CBO expects that under current law about 1,300 drugs will be approved over the next 30 years," a CBO report says.

The CBO, analyzing a more ambitious proposal in 2019 by House Speaker Nancy Pelosi that would have negotiated prices for more drugs, estimated that the Pelosi plan would reduce the number of new drugs coming onto the market by 8 to 15 new drugs over the next decade.

"The overall effect on the health of families in the United States that would stem from increased use of prescription drugs but decreased availability of new drugs is unclear," the CBO said.

While lower drug prices allow people to use more drugs, thereby aiding their health, lower drug prices also means that drug manufacturers will spend less money on research and development, reducing the supply of new drugs, the CBO explained.