Even in their pared-down form passed by Congress, the changes to the U.S. health care system in the Inflation Reduction Act are momentous, politically and for the many patients struggling with drug costs.
The Inflation Reduction Act is the biggest health reform initiative since passage of the Affordable Care Act, also known as Obamacare, more than a decade ago. And the fact that this new legislation passed despite the opposition of the drug industry — which, along with most insurance companies and hospitals, largely supported the A.C.A. — makes it, in a sense, even more of a statement about what’s politically possible in reforming the health system.
Until now, the United States stood alone among high-income countries with no government control (outside of Medicaid and the Veterans Health Administration) over drug prices. That’s why prices in this country are roughly triple what other nations pay for the same brand name drugs.
Allowing Medicare to negotiate drug prices is the culmination of an effort that began decades ago. As far back as 1993, President Bill Clinton proposed adding a drug benefit to Medicare as part of his ill-fated Health Security Act, including having the government negotiate prices using its purchasing leverage. Democrats have been very successful at expanding health coverage but less effective at controlling costs.
The political power of the pharmaceutical industry has historically prevented the United States from controlling drug prices. The plan is not the sweeping drug-pricing measure originally envisioned by Democrats, but it is the single biggest political loss the drug industry has sustained. Big Pharma is no longer invincible, which could embolden future efforts to expand the scope of the drug-pricing restraints.
The legislation also tackles inflation head-on with respect to drug prices. From 2019 to 2020, the prices of half of the drugs covered by Medicare increased faster than inflation. Starting next year, if drug makers raise prices for Medicare-covered drugs more than inflation, they will have to pay a penalty. This will help put the brakes on price hikes and lower the federal budget deficit if drug companies increase prices. It will directly help many who have to pay a percentage of a medication’s list price, known as coinsurance.
These drug-pricing restraints give Democratic candidates potent talking points heading into the midterm elections this fall. For example, after hearing arguments for and against giving the government the authority to negotiate drug prices, 83 percent of adults said they support it, including 71 percent of Republicans, according to a Kaiser Family Foundation tracking poll. It’s rare to find an issue that has such bipartisan appeal. In Congress the legislation passed with no votes from Republicans.
Because the Inflation Reduction Act ended up less sweeping than originally envisioned, some political challenges remain for Democrats. Government-negotiated drug prices will not take effect until 2026, so the tangible benefits will require some patience. It’s conceivable that, depending on the outcome of the next presidential election, there could be efforts to roll back the plan or slow it down, as there have been with Obamacare.
These price negotiations will not apply to all drugs — just 10 medications in the first year, 15 more the following year and ultimately 20 additional drugs each year. So people cannot expect lower prices every time they walk up to the pharmacy counter to fill prescriptions.
And perhaps most important, the government will not negotiate drug prices for people with private insurance or no insurance. Seniors who rely on Medicare use a lot of health care and are an important voting bloc, but over 200 million people will still be paying unconstrained drug prices. For example, the new law provides for a cap on insulin co-pays at $35 per month, which is welcome news for people who need it to stay alive. But again, that provision applies only to the 3.3 million insulin users in Medicare, not to the millions of others who are uninsured or privately covered.
Democratic candidates may try to use this exclusion to their political advantage. The bill they proposed in the Senate included an insulin co-pay cap for people with private insurance. But because the Senate parliamentarian determined that the provision did not comply with budget rules, Republicans challenged it and voted it down.
One of the most tangible provisions of the law would reduce drug costs for Medicare beneficiaries with especially high medication expenses. Out-of-pocket drug costs would be capped at $2,000 per year, savings thousands of dollars for some patients with expensive illnesses like cancer. Over one million Medicare beneficiaries would benefit from this cap each year, though the vast majority of enrollees do not have drug expenses high enough to qualify in any given year.
The other big health care provision in the legislation would extend enhanced A.C.A. premium assistance for three years, through 2025. These subsidies, which were added as part of the American Rescue Plan in 2021 and are saving A.C.A. enrollees an average of over $700 annually on their premiums, were set to expire at the end of this year. If Congress had not acted, premiums would have skyrocketed by 53 percent, with notices going out to consumers right before the elections. Though Democrats will not be able to promise even lower premiums, they can say they prevented a huge premium hike — and a resulting political headache.
Having passed the Inflation Reduction Act, Democrats go into the midterm campaigns with a strong message to voters about relief from health care costs. Yet, as popular as their platform will be, its reach has limits. Drug-pricing restraints will not apply immediately or to everyone, and drugs account for less than 10 percent of health spending.
As always, the outcomes of elections have consequences. In fact, with the effects of drug price negotiation delayed until 2026 and enhanced A.C.A. premium assistance expiring that year, these elections and the ones in 2024 could well determine the shape of health care affordability into the future.
Larry Levitt is the executive vice president for health policy at Kaiser Family Foundation (KFF).
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