Congressional Democrats Want to Let Medicare Negotiate Prices With Drugmakers. Here's What That Could Mean for the Cost of Coverage

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  • Under the 2003 legislation that created Medicare Part D to provide beneficiaries with prescription drug coverage, the government is prohibited from negotiating prices with drugmakers.
  • President Joe Biden and congressional Democrats want to change that as a way to reduce the cost of prescription drugs.
  • Lowering drug costs is one goal of Democrats' $3.5 trillion spending plan.

A push to rein in the cost of prescription drugs for Medicare beneficiaries could emerge on Capitol Hill in the coming months.

President Joe Biden called on Congress last week to reduce those costs through several means: letting Medicare negotiate with drug manufacturers, generally limiting price increases to the inflation rate and capping beneficiaries' annual out-of-pocket spending on prescriptions to about $3,000. 

At the same time, cutting drug prices is a goal included in congressional Democrats' budget resolution, which calls for $3.5 trillion in spending on climate change, health-care and family service programs.

The Democrat-controlled Senate already approved the resolution, and the House — where Democrats also are the majority — is expected to vote on it next week. The budget plan also calls for Medicare to provide dental, vision and hearing coverage.

Assuming approval, lawmakers would then create a legislative package to reflect what's in that budget framework.

"There is strong public support for having the government do something about drug prices," said Tricia Neuman, executive director of the Medicare program at the Kaiser Family Foundation. The group found that 88% of individuals polled in May favor letting the federal government negotiate for lower prices on medications. A WestHealth/Gallup poll had similar results: 81% in favor.

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When Medicare Part D was created by Congress in 2003 to provide prescription drug coverage (which began in 2006), the legislation prohibited the program from negotiating prices with pharmaceutical companies.

Additionally, there is no out-of-pocket maximum for Part D (although cost-sharing drops significantly for individuals who reach the so-called catastrophic coverage phase). Of Medicare's 62.8 million beneficiaries — the majority of whom are age 65 or older — about 47.4 million have Part D coverage, according to the Center for Medicare and Medicaid Services.

This wouldn't be the first time Congress has considered permitting Medicare to negotiate drug prices. In 2019, the Democrat-dominated House passed a bill, H.R. 3, which would have allowed it, but the Senate, then in Republican control, did not take it up.

The measure was reintroduced this year. It would require the secretary of the Department of Health and Human Services to negotiate the price of at least 50 brand-name drugs each year without generic competitors starting in 2025.

An actuarial analysis of the original H.R. 3 version — which called for negotiating on just 25 such drugs — showed that spending by Part D enrollees would fall by $117 billion between 2020 and 2029 if price negotiations were allowed. That amount included a $102.6 billion reduction in cost-sharing (i.e., copays, coinsurance) and a $14.3 billion drop in Part D premiums.

Using projected premium costs for 2023 through 2029 from the 2020 Medicare trustees report, Neuman's group found that the estimated $14.3 billion premium savings would result in a 9% reduction in 2023 in what beneficiaries would otherwise pay for Part D coverage. By 2029, that savings would grow to 15%. (The trustees report projected annual premiums of $440 in 2023 and $560 by 2029.)

"We'd anticipate the premium reductions to be somewhat larger if the secretary would have the authority to negotiate prices for more drugs," Neuman said.

For 2021, the base premium for Part D is about $33 monthly ($396 for the year). However, the amount varies from plan to plan. And, certain beneficiaries get help covering their drug costs, while higher earners pay extra each month for coverage. 

Additionally, the price of drugs can vary wildly from plan to plan, as each insurer has its own formulary — its list of covered drugs — and what beneficiaries must pay for each of them.

Generally speaking, congressional Republicans are not fans of allowing Medicare to negotiate drug prices, citing concerns about a possible reduction in pharmaceutical companies' investment in research and development. A 2019 report from the Congressional Budget Office estimated that passage of H.R. 3 could lead to an average of eight fewer drugs being introduced to market from 2020 through 2029, and 30 fewer in the decade after that.

There's no guarantee that the price-negotiation proposal would make it through the full legislative process, given Democrats' razor-thin majority in the Senate.

"It's still somewhat early in the process and we'll have to wait and see," Neuman said.

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