How much drug price control are we getting in the Inflation Reduction Act?

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When media addresses the prescription drug cost control measures in the Inflation Reduction Act, the provisions empowering Medicare to negotiate the price of select high-value drugs tends to suck up all the attention. 

Rightly, perhaps. While the negotiation regime is slow to start (beginning with 10 drugs to be negotiated in 2026), modest in number (rising to 20 drugs negotiated in 2029), and abjuring reference pricing from European countries (instead capping prices at a set discount of average U.S. prices), it establishes a vital principle, and the scope and terms of negotiation may be expanded and strengthened over time. 

That said,  a lower-profile provision that kicks in quickly (in 2023) is projected (by the Congressional Budget Office) to save/raise roughly as much money as drug negotiation: Inflation caps on the prices of drugs currently on the market. If a drug manufacturer raises the average price charged for a given drug by an amount that exceeds the consumer price index for urban consumers (CPI-U) it must rebate the difference to Medicare. That provision not only starts right away, it also applies to employer-sponsored and individual market health plans as well as Medicare (the rebates accrue from all drugs sold but are paid only to the federal government). CBO projects that the inflation caps will generate $62 billion in savings and $38 billion in revenue over ten years.

Triage: A dedicated source of funding to extend the ARPA subsidy boosts (if all else fails)

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The increases to premium subsidies in the ACA marketplace provided through 2022 by the American Rescue Plan Act (ARPA) have been a policy success, helping to boost marketplace enrollment by 21% this year.  During Democrats' long, weary negotiations over the Build Back Better bill in the fall, extension of those subsidies (first permanently, then, foolishly, for just 3 years) was taken as a given.  Even when BBB negotiation collapsed, failure to extend the subsidies seemed unthinkable...until it didn't.  

By May, it began to seem that Joe Manchin might not allow any Democratic priorities to pass via a reconciliation (bypassing the filibuster, and requiring all Senate Democrats to be on board). More recently, there's been a pulse -- apparently serious negotiations for a stripped-down bill possibly including climate investments, repeal of Republican tax cuts, empowering Medicare to negotiate prescription drug costs, and, maybe maybe, extension of the ARPA subsidy boosts for marketplace coverage.

Most recently, Manchin has made vaguely sympathetic but equivocal noises about extending the subsidy boosts, which are not a priority for him (the ACA Medicaid expansion insures about ten times as many West Virginians as the ACA private plan marketplace). And as Politico's Adam Cancryn outlines, his maunderings have left Democrats trying to squeeze them in with a dilemma.

Manchin hath decreed that a) any programs included in the reconciliation package be permanent, rather than sunsetting after a fixed number of years, and b) half the money raised through tax increases go to deficit reduction, leaving about $500 billion over ten years for all spending priorities. CBO estimated the 10-year cost of permanent extension of the ARPA subsidies at $210 billion. Prescription drug pricing reforms are projected to raise somewhere over $100 billion, depending on how they're structured. The three-year cost of ARPA subsidy extension, per CBO, is $74 billion. But, per Manchin rules...no temporary programs!

Given this Catch-22, it may be worth thinking about ever-present but studiously ignored (rightly, on the extra-Manchin merits) policy option: Fund the ARPA-level subsidies by funding the marketplace's Cost Sharing Reduction (CSR) subsidies in the original, statutory way, directly reimbursing insurers for their CSR costs.  CSR reduces out-of-pocket costs for low income enrollees (a slight majority of enrollees) who select silver plans.

If BBB remains blocked and ARPA subsidies go poof, what can CMS do to mitigate the damage?

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In the wake of Manchin's weekend declaration that he won't vote for the Build Back Better bill,  I am sure I'm not alone in choosing to hope that this is not game over, that some fragments of Biden's domestic agenda will become law. Still, it's time to face the strong possibility that the major temporary subsidy boosts in the ACA marketplace enacted in the American Rescue Plan Act will expire, and that the marketplace will revert to its under-subsidized pre-ARPA state in 2023.

It's time, then, to recall the various ways the administration can boost affordability in the marketplace without legislation, leaving coverage less affordable than it is now, but more affordable than it was before March 2021, when ARPA was enacted. 

Few Medicare enrollees pay huge prescription drug costs out of pocket

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The scaled-back prescription drug cost control measures belatedly added to the Build Back Better bill include a $2,000 annual cap on out-of-pocket costs for enrollees in Medicare Part D.

That's a vital reform, since Medicare enrollees' exposure to drug costs is currently open-ended, and can run to many thousands for the most expensive drugs, e.g., for cancer or rare diseases. 

But the complex Part D payment formula can leave some observers with the impression that more enrollees are paying astronomical costs than is the case. Specifically, references to amounts paid by all payers in each of the first three coverage phases often give the impression that those total costs are paid by enrollees. Such confusion appears to have recently reached the White House:

HealthSherpa shows how to shrink the coverage gap

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As I have noted repeatedly (1, 2, 3) the ACA's notorious coverage gap -- the unavailability of subsidized insurance for adults with incomes below 100% FPL in states that have refused to enact the ACA Medicaid expansion -- is exacerbated by ignorance. 

Few low income applicants in the 11 remaining "gap" states* know that they must estimate a minimum income for the coming year to qualify for coverage. HealthCare.gov, the application venue for all applicants potentially subject to the gap, does not spell out in the application or in the plan preview tool that a minimum income is required. People who are told that they do not qualify for aid because their income is too low are rightly incredulous.

Since fall 2018, however (during Open Enrollment for 2019), HealthSherpa, a commercial online health insurance brokerage used by thousands of brokers, has spelled out that vital information. 

If Democrats fail to enhance the ACA or remove the coverage gap, what can the Biden administration do?

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As the extent to which Senators Manchin, Sinema, and other corporate Democrats will eviscerate the original outline of the Build Back Better bill sinks in, it's time to consider the once-unthinkable: what if Democrats fail to extend the enhanced ACA marketplace subsidies enacted in the American Rescue Plan Act (ARPA) in March?  And what if -- which was always uncertain -- they fail to plug the coverage gap in states that have refused to expand Medicaid?