The Senate Finance Committee recently released legislative text to be included in an upcoming reconciliation bill that includes several provisions to lower drug costs for people with Medicare and private insurance and to reduce drug spending by the federal government. According to the CBO, the prescription drug provisions in the Senate reconciliation legislation would reduce the federal deficit by $288 billion over 10 years (2022-2031). This would reduce out-of-pocket costs for Medicare beneficiaries and limit increases in drug prices for Medicare and private insurance. The provisions will be implemented over several years from 2023 (Figure 1). This brief examines the potential impact of these provisions on Medicare beneficiaries nationally and by state based on the text of the legislation released on July 27, 2022.
The Senate Finance Committee legislation includes two policies designed to have a direct impact on drug prices, both of which are similar to provisions contained in legislation passed in the US House of Representatives in November 2021:
- required The federal government to negotiate the prices of some high-cost drugs covered under Medicare. High-cost brands without a generic or biosimilar equivalent covered under Medicare Part D (retail prescription drugs) or Part B (administered by a physician) and nine or more years (small-molecule drugs) or 13 or more years (small-molecule drugs) and Biological drugs are biologics) eligible for consultation by FDA approval. The number of negotiated drugs will be limited to 10 Part D drugs in 2026, 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 and later years. CBO estimates $101.8 billion in Medicare savings from the drug counseling provision.
- The number of Medicare beneficiaries who will see lower out-of-pocket drug costs in any given year under this provision and the amount of savings will depend on which drugs are subject to negotiation under the legislation and the price reductions achieved through negotiation. Process compared to current prices.
- It imposes rebates on drug makers that raise prices faster than inflation To limit annual increases in drug prices for people with Medicare and private insurance. From 2019 to 2020, half of the drugs covered by Medicare had a price increase above the rate of inflation during that period (1%, before the recent increase in the annual inflation rate), and among those drugs whose price increase exceeded inflation, one-third had a price increase of 7.5% or more. Inflation rate at the beginning of 2022. The inflation discount provision will be implemented from 2023, with 2021 being used 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 discount provision, from both spending and new revenues.
- The number of Medicare beneficiaries and privately insured individuals who would see lower out-of-pocket drug costs in any given year under this provision depends on how many and which drugs have lower price increases and the magnitude of price changes compared to baseline prices.
The Senate Finance Committee legislation includes several provisions that would reduce out-of-pocket costs for Medicare beneficiaries:
- Eliminates the 5% coinsurance requirement above the Medicare Part D catastrophe limit in 2024 and adds a $2,000 cap to Part D in 2025, with other Part D benefit design changes. In 2022, the catastrophic limit is set at $7,050 in out-of-pocket drug costs, which includes what beneficiaries pay themselves and the value of the manufacturer’s discount on the price of brand-name drugs in the coverage gap (sometimes called the “doughnut hole”), which counts toward this amount. Under current law, beneficiaries using brand-name drugs in 2022 would have to spend about $3,000 out of their own pockets (rising to about $3,500 in 2025) before qualifying for catastrophic coverage and then face a 5% coinsurance. CBO estimates that the Part D benefit design changes will increase federal spending by $25.1 billion over 10 years.
- 1.3 million Medicare Part D enrollees without low-income subsidies had costs above the catastrophic coverage threshold in 2020 (the most recent data available), which was $6,350 that year, And that would be helped by removing the 5% co-insurance requirement above the catastrophic limit. (See Table 1 for state-level estimates)
- 1.4 million Medicare Part D enrollees without low-income subsidies had annual drug costs of $2,000 or more in 2020 And a proposed $2,000 hard cap on out-of-pocket drug spending would help. This group includes 1.3 million enrollees without LIS who spent more than the catastrophic threshold in 2020. (See Table 1 for state-level estimates)
- These estimates of how many beneficiaries could be helped by these changes are conservative because they do not account for the expected increase in average annual out-of-pocket costs starting in 2020, which would increase the number of beneficiaries spending above the catastrophe threshold, or $2,000.
- Limiting out-of-pocket drug costs under Medicare Part D is especially helpful for beneficiaries who take high-cost drugs for conditions such as cancer or multiple sclerosis. For example, in 2020, among low-income unsubsidized Part D enrollees, the average annual cost for the cancer drug Revlimid was $6,200 (used by 33,000 beneficiaries); $5,700 for the cancer drug Imbruvica (used by 21,000 beneficiaries); and $4,100 for the MS drug Avonex (used by 2,000 beneficiaries).
- Eliminate cost-sharing for adult vaccines covered under Medicare Part D by 2023 and improve access to adult vaccines under Medicaid and CHIP. CBO estimates that these provisions would increase federal spending by $4.4 billion and $2.5 billion, respectively, over 10 years.
- 4.1 million Medicare beneficiaries received the vaccine under Part D in 2020, including 3.6 million who received the vaccine to prevent shingles. and would benefit from the elimination of cost-sharing for Part D vaccines. (See Table 1 for state-level estimates)
- Medicaid and the CHIP provision require vaccine coverage for all Medicaid-enrolled adults. Under current law, vaccine coverage is optional for many adults, and coverage varies by state. According to a recent survey, over half of states (25) did not cover all vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) in 2018-2019, and 15 of the 44 states that responded to the survey imposed cost-sharing requirements on adult vaccines.
- Expands eligibility for full Part D Low Income Subsidies (LIS) in 2024 Repeals the current partial LIS benefit for low-income beneficiaries with incomes up to 150% of poverty and modest assets and for individuals with incomes between 135% and 150% of poverty. Beneficiaries receiving partial LIS benefits typically pay a portion of the Part D premium and modest reimbursements for drugs above the standard deductible, 15% coinsurance, and catastrophe limit, while those receiving full LIS benefits pay no Part D premium or deductible and only modest reimbursements. As they face any cost sharing, medications until they reach the catastrophic threshold. CBO estimates that the provision would increase federal spending by $2.2 billion over 10 years.
- 0.4 million Medicare beneficiaries received partial LIS benefits in 2020 And could potentially be helped by the expansion of income eligibility for full LIS benefits. Based on the difference between average out-of-pocket drug costs for LIS enrollees receiving full benefits and partial benefits in 2020, annual out-of-pocket costs for these beneficiaries could decrease by about $300. (See Table 1 for state-level estimates)
- This provision would particularly benefit low-income black and Hispanic Medicare beneficiaries, more so than white beneficiaries with incomes between 135% and 150% of poverty.
The Senate fiscal reconciliation legislation also includes a provision to repeal the Trump administration’s drug rebate rule, currently set to take effect in 2027. The rebate rule eliminates anti-kickback safe harbor protections for prescription drug rebates negotiated between drug manufacturers and pharmacy benefits. Managers (PBMs) or health plan sponsors in Medicare Part D. If implemented, this rule would increase Medicare spending and premiums paid by beneficiaries. CBO estimates that this provision would save $122.2 billion between 2027 and 2031.
High and rising drug prices remain a top health care affordability concern among the general public, with large majorities of Democrats and Republicans supporting policy measures to reduce drug costs. The ban against the federal government negotiating drug prices was a controversial provision of the Medicare Modernization Act of 2003, the law that established the Medicare Part D program, and lifting the ban has been a longtime goal for many Democratic policymakers. The pharmaceutical industry has argued that allowing the government to negotiate drug prices stifles innovation. CBO estimates that 15 of the 1,300 drugs, or 1%, will not be on the market over the next 30 years as a result of the drug provisions in the reconciliation legislation.
Senate finance legislation would cap annual increases in drug prices for people with Medicare and private insurance, a response to public concerns about rising drug prices. Although drugmakers are likely to respond to inflationary rebates by raising launch prices, overall, the provision would limit the growth of out-of-pocket drug costs for people with Medicare and private insurance and put downward pressure on premiums by discouraging the drug. Companies raise prices faster than inflation.
The $2,000 hard cap on out-of-pocket prescription drug spending is the first major change to the Medicare Part D benefit since 2010, when lawmakers included a provision in the Affordable Care Act to close the so-called Part D “doughnut hole.” ” The cap on out-of-pocket drug costs for Medicare Part D enrollees provides substantial financial protection for people on Medicare with high out-of-pocket costs. This includes Medicare beneficiaries who take only one very expensive specialty drug for medical conditions such as cancer, hepatitis C, or multiple sclerosis, and beneficiaries who take relatively expensive brand or specialty drugs to manage their medical conditions.
This work was supported in part by Arnold Ventures. KFF maintains full editorial control over all its policy analysis, polling and journalistic activities.
Juliette Cubanski, Tricia Newman and Meredith Freed are with KFF. Anthony Damico is an independent consultant.