How the Inflation Reduction Act would save Medicare drug costs

Seniors and patient groups have long pursued a seemingly improbable goal of granting Medicare the authority to negotiate prescription drug prices.

Legislation passed by the U.S. Senate on Sunday and advanced to the House would finally allow the federal health program for older Americans to seek lower prescription drug prices at the bargaining table. The legislation also limits out-of-pocket costs of Medicare recipients at $2,000 a year.

Patient advocates hailed the legislation as a win for seniors who struggle to pay rising prescription drug prices. If enacted, the bill would be the most ambitious piece of health legislation since 2010's Affordable Care Act, President Barack Obama's signature health law.

While the ACA extended coverage to millions through subsidized private insurance and expanded Medicaid for lower-income Americans, it didn't address the rising cost of prescription drugs.

David Mitchell, founder of Patients For Affordable Drugs Now, said the Democrats' sweeping climate and health care bill, called the Inflation Reduction Act, is a hard-fought win for patients like himself.

"It's a monumental change – a really significant victory," Mitchell told USA TODAY.

Mitchell pays more than $16,000 each year for a prescription drug he takes to treat  multiple myeloma, a type of blood cancer he has battled for more than a decade. He said the annual $2,000 cap on prescription drug spending is "going to make a big difference."

"These are all features that are going to help millions of Americans be better able to afford the drugs they need now," Mitchell said.

What's in the bill?

For the first time, Medicare would be allowed to negotiate prices for prescription drugs.

Under the bill, Medicare would negotiate the cost of up to 10 retail drugs beginning in 2026. By 2029, Medicare's bargaining power would expand to 20 retail and 20 doctor-administered drugs. The bill would save the federal government an estimated $288 billion over the next decade.

Those savings would help offset the cost of implementing a $2,000 out-of-pocket cap for older adults. Medicare recipients also would have insulin prices capped at $35 a dose. That cap will not extend to Americans covered by private insurance plans after Republicans stripped that provision from the final bill.

The bill benefits people who must take expensive prescriptions for conditions such as cancer or multiple sclerosis. An estimated 1.4 million Medicare recipients spent at least $2,000 on prescriptions in 2020, the most recent year with available data, according to a Kaiser Family Foundation analysis.

The bill also would dampen drugmakers' ability to significantly hike prices. Beginning next year, drugmakers that increase prices above inflation levels would be required to pay rebates.

The bill also would provide free vaccines for seniors. For younger Americans, it extends Affordable Care Act subsidies three more years through 2025. That will make insurance coverage less expensive for lower and middle-income earners who directly purchase coverage on federal and state insurance exchanges.

AARP CEO Jo Ann Jenkins said her organization has fought for two decades to allow Medicare to negotiate drug prices for older Americans.

"This bill will save Medicare hundreds of billions of dollars and give seniors peace of mind knowing there is an annual limit on what they must pay out-of-pocket for medications," Jenkins said.

Drug industry backlash

Drug companies long have enjoyed the ability to set prices for the millions of seniors on Medicare.

Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, a drug industry group, said the legislation is a "tragic loss for patients."

He said proponents are "misleading the American people when they say this bill fixes the affordability challenges patients face. This bill provides almost no relief to millions of individuals trapped in an insurance system that discriminates against sick patients."

Furthermore, industry groups warn the legislation will limit innovation. The nonpartisan Congressional Budget Office estimated 15 fewer drugs would hit the market over the next 30 years.

Michelle McMurry-Heath, president and CEO of the Biotechnology Innovation Organization, which represents biotech companies and drug developers, said small companies drive innovation and rely on private investment to spur research and development. She added that "every credible analysis of the Inflation Reduction Act comes to the same conclusion: fewer cures for patients."

Younger Americans not covered

While seniors would get a financial break under the legislation, those protections won't extend to younger Americans who buy their own coverage or are insured by an employer plan.

Employers who cover more than 150 million Americans are concerned that the prescription drug provisions apply solely to Medicare recipients, said James Gelfand, president of the ERISA Industry Committee, which represents large employers that directly provide health insurance and other benefits to employees.

Gelfand said the prescription drug provisions apply solely to Medicare recipients, which concerns employers who cover more than 150 million Americans.

"There are many who are deeply concerned the prices in private insurance will just rise to make up for whatever losses there would be in Medicare," Gelfand said.

Ken Alltucker is on Twitter at @kalltucker, or can be emailed at alltuck@usatoday.com.

This article originally appeared on USA TODAY: Biden's inflation bill seeks to lower Medicare drug costs for seniors