Why letting Medicare negotiate drug prices won’t be a game-changer for health care – InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.™

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Newswires
Topics
    • Life Insurance News
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Sponsored Articles
    • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
Sign in or register to be an INNsider.
  • Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
  • Insider Pro
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
Health/Employee Benefits News
Newswires RSS Get our newsletter
Order Prints
August 17, 2022 Newswires No comments
Share
Share
Tweet
Email

Why letting Medicare negotiate drug prices won’t be a game-changer for health care

Conversation, The (US)
By Simon F. Haeder

Democrats hope their new health care, tax and climate law begins to rein in soaring prescription drug prices.

One of its most touted provisions allows Medicare, America’s health insurance program for seniors, to negotiate some prescription drug prices for the first time, with some calling it “game-changing” and a significant victory over the pharmaceutical industry. Drug manufacturers had stubbornly opposed any governmental regulation of drug prices for decades and are likely to challenge the measure in court.

Related stories

  • Nearly half of all gig workers have no access to health insurance
  • California offers health insurance for $10 a month. The deadline is days away

As a scholar who has published extensively on the politics of health policy, I’m skeptical that giving Medicare the ability to negotiate prices on a handful of drugs will be as transformative as the law’s backers hope. While a good step, it is unlikely to make a significant difference in how much seniors pay overall for medicine.

Fortunately, there are several other provisions in the law that will do much more to meaningfully help seniors struggling with the high cost of prescription drugs.

Why US drug prices are so high

Pharmaceutical innovation over the past few decades has been tremendous. The quick response to the COVID-19 pandemic in terms of vaccine development and treatments perfectly exemplifies the incredible benefits that drug developers have brought to the world.

Yet these developments have come at a high price, particularly in the United States, where each person spends more than US$1,100 a year on drugs – up from $831 in 2013. Indeed, Americans are paying substantially more than residents of similar countries like Germany, the U.K. and Australia – who pay $825, $285 and $434 per person each year, respectively.

People who need specific high-priced drugs are even more adversely affected.

Dulera, an asthma drug, costs 50 times more in the U.S. than the international average. Januvia, for diabetes, and Combigan, a glaucoma drug, cost about 10 times more. Americans shell out, on average, $98.70 for a vial of insulin, compared with the $6.94 Australians pay.

These costs impose a big burden on Americans – 1 in 5 of whom skip medications because of the cost. Seniors are particularly affected by these problems.

The reasons for high prices are varied, including the overall complexity of the U.S. health care system and the lack of transparency in the drug supply chain. But as I noted in a 2019 article in The Conversation, the biggest reason Americans pay so much more than people do elsewhere is simple: Pharmaceutical companies face no limits setting prices.

Changing the game – a little

The new law, known as the Inflation Reduction Act and signed into law on Aug. 16, 2022, seeks to change that.

The main mechanism to do it is by allowing Medicare to negotiate prices for some of the most expensive drugs. The act gives Medicare the ability to negotiate with drugmakers for 10 drugs starting in 2026 and 20 by 2029.

The law specifies that the medications Medicare is supposed to select must account for most of its spending on drugs and be name brands with no generic equivalents. Research has found that a relatively small number of drugs are responsible for most spending.

Importantly, pharmaceutical companies may face civil penalties and additional taxes on drug sales if they do not comply with the requirements to establish a “maximum fair price” as laid out in the law.

The provision is expected to save the U.S. government about $102 billion over 10 years by allowing it to pay less on prescription drugs for Americans on Medicare – currently 63 million people. The annual savings amount to about 5% of what Medicare currently spends on drugs.

There’s also a separate provision that requires pharmaceutical companies, under certain conditions, to provide Medicare with rebates if drug prices outpace inflation. That measure takes effect this year and is expected to yield $71 billion in savings over a decade.

While the government savings are meaningful, I believe seniors themselves are likely to see only a minor drop in costs as a result of this provision, mainly through slightly reduced premiums and lower out-of-pocket costs.

Where the real savings are

The provisions that will make a much bigger difference for seniors lie elsewhere.

Importantly, the new law limits seniors’ out-of-pocket expenses for prescription drugs to no more than $2,000 annually. Previously, there were some restrictions but no limit. This will directly help 1.4 million seniors who exceeded the $2,000 threshold in 2020.

The law also limits how fast premiums for Medicare Part D, which provides premium-based prescription drug insurance, can rise over the next few years and implements a number of other adjustments.

It also extends the Medicare Part D low-income subsidy to 400,000 seniors who previously earned too much to qualify. This program helps people pay for premiums, deductible and copays and has been valued at $5,100 a year.

The legislation also limits the cost of insulin to no more than $35 per month for Medicare recipients only. This amounts to more than $1 billion in annual savings for seniors. Almost 16 million American seniors have diabetes and are likely to need insulin at some point in their lives.

Lastly, it also eliminates out-of-pocket costs for seniors for vaccines – a move that would have saved money for 4.1 million people in 2020.

Broader impact

There are real benefits in the bill President Biden signed into law. The government will save by negotiating prices. Seniors will save through the insulin cap and other provisions.

But I don’t believe Medicare’s ability to negotiate prices will be a game-changing reform.

Besides affecting prices paid by only a slice of Americans, we do not know how aggressively the federal government will seek savings. This particularly applies to any future administration headed up by a Republican president.

The pharmaceutical industry may still manage to limit the impact of price negotiations, since it will be four years before the changes take effect. The industry has a history of skillfully exploiting loopholes and a vast lobbying apparatus to put into that effort.

As for Americans who aren’t covered under Medicare, drug prices may actually go up. That’s because, if pharmaceutical companies do end up reducing drug prices for seniors, they may shift those costs to everyone else to make up for those lost profits.

Simon F. Haeder does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Older

MENA Health and Medical Insurance Market Report 2022: 6% Annual Growth Expected Driven By Increasing Investment – ResearchAndMarkets.com: Research and Markets

Newer

American Financial Group, Inc. Increases Annual Common Stock Dividend by 12.5%; Seventeenth Consecutive Year of Dividend Increases

Advisor News

  • For some, nothing to fear from taking RMDs, professor says
  • Half of investors plan to work after retirement
  • Cetera to acquire Securian’s retail wealth business
  • Study: Education level should drive decisions on Social Security, annuities
  • Former California energy company exec given 5 years in prison for $15M investment fraud
More Advisor News

Annuity News

  • Investors scrambling to lock in rates propel annuity sales to record highs
  • North American and Annexus launch new fixed index annuity
  • Producers stew as insurers slow to process life and annuity applications
  • Substitute teacher wins massive lottery drawing in North Carolina. ‘Too good to be true’
  • Brad Rhodes: An annuity product many have never heard of
More Annuity News

Health/Employee Benefits News

  • Nearly half of all gig workers have no access to health insurance
  • California offers health insurance for $10 a month. The deadline is days away
  • Amazon announces service to deliver medications to your door. Here’s how it works
  • COVID-19Another COVID ‘new normal’: more Californians dying at home
  • Seven sentenced in conspiracy to defraud federal health insurance programs
More Health/Employee Benefits News

Life Insurance News

  • Cetera to acquire Securian’s retail wealth business
  • What does Curtis 'Cousin Eddie' Smith know in Murdaugh case?
  • Alex Murdaugh's murder trial starts with cellphones, bullets
  • Prosecutors, defense argue guns, bad acts in Murdaugh trial
  • Lincoln Financial Group offers new, fully automated life product, WealthAccelerate
Sponsor
More Life Insurance News
The time is 09:41:27pm test

- Presented By -

Top Read Stories

  • A Louisiana employer's health perks helped their workers lose weight. Here’s how.
  • US debt ceiling limit reached; Social Security, Medicare targeted
  • Former CEO of Texas beverage company sentenced to 10 years in prison for fraud
  • LETTER: FEMA flood insurance is all but worthless
  • Progressive online practices set example for agents, other carriers
More Top Read Stories >

FEATURED OFFERS

Grow life insurance sales in 2023 with middle-market clients

Tap a new source for sales and referrals with Allianz Life Insurance Company of North America.

Don't Miss ICMG 2023

When the success of your business depends on making the right connections, ICMG is the place to be.

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

Topics

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Sponsored Articles
  • Monthly Focus

Top Sections

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • Insurance Webinars

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
© 2023 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • AdvisorNews

Sign in with your Insider Pro Account

Not registered? Become an Insider Pro.