President Biden recently outlined his vision for improving prescription drug affordability. His plan calls on Congress to allow Medicare to negotiate drug prices, impose penalties on drug companies that raise prices faster than inflation, and cap Medicare beneficiary out-of-pocket drug costs.
The speech builds on previously stated goals. During his April 28 Joint Address to Congress, President Biden highlighted the need to reduce prescription drug prices, including through Medicare negotiation. His Fiscal Year 2022 budget request also calls on Congress to act.
The administration’s drug pricing policies would significantly reduce costs for people and programs. Medicare negotiation is strongly associated with the potential to generate large savings. And as a new report from the Kaiser Family Foundation (KFF) explains, the Part D financing structure means beneficiaries would see those savings at the pharmacy counter and in their monthly premiums.
Under Part D, most Medicare drug plans offer a standard benefit package, and most enrollees pay monthly premiums for that coverage. The base premium ($33.06 in 2021) is adjusted annually. It is calculated to cover 25.5% of the projected cost of a standard Part D plan, which can change from year to year. Medicare subsidizes the remaining 74.5%. As a result, the lower drug prices that Medicare negotiation is expected to yield would also lower the cost of standard coverage—and Part D premiums.
For example, the drug pricing negotiation provisions in the 2019 version of H.R. 3 are estimated to save Medicare Part D enrollees $117 billion over 10 years in the form of reduced cost-sharing ($102.6 billion) and lower premiums ($14.3 billion). This is in addition to Medicare program savings, which the Congressional Budget Office (CBO) estimates would be around $448 billion over 10 years.
According to KFF, “the $14 billion in aggregate Part D premium savings from drug price negotiation over a decade translates into estimated per capita savings for Part D enrollees who pay premiums of $39 annually in 2023, increasing to $85 annually in 2029. This translates to savings of 9% of the base beneficiary premium in 2023 and 15% in 2029.”
These savings, as well as other reforms, are long overdue. Half of all people with Medicare live on $29,650 or less per year, and one-quarter have less than $8,500 in savings. Although most beneficiaries cannot afford to pay more for care, annual drug price hikes consistently exceed the rate of inflation and new drugs are launching at ever-higher price points.
Medicare Rights strongly supports efforts to meaningfully lower prescription drug prices and beneficiary costs, including through H.R. 3’s Medicare negotiation provisions. We applaud President Biden for his commitment to these goals and urge Congress to act without delay.