President Biden Pushes Medicare Drug Cost Negotiation

Executive Support Still Alive for Certain Healthcare Reform Proposals

During his State of the Union Address on March 1, 2022, President Biden reiterated his proposal to reduce prescription drug cost by capping insulin prices at $35 and allowing Medicare to negotiate drug prices with manufacturers. The proposal was originally part of the Build Back Better Act, which the Senate rejected in late 2021. While the original proposal was rejected for non-drug-related reasons, Biden’s State of the Union Address indicates that these reforms aren’t dead just yet.

Proposed Insulin Price Cap of $35

Biden’s proposal focuses on three major pain points that millions of Americans face regarding prescription drug costs. One of the most high-profile is the proposed insulin price cap. During his speech, Biden mentioned the plight of seventh-grader Joshua Davis of Midlothian, VA, who was attending the address as Biden’s guest:

He (Joshua) and his Dad both have type 1 diabetes, which means they need insulin every day. Insulin costs about $10 a vial to make. But drug companies charge families like Joshua and his dad up to 30 times more. I spoke with Joshua’s mom. Imagine what it’s like to look at your child who needs insulin and have no idea how you’re going to pay for it.

Type I Diabetes is an auto-immune disorder which, while commonly diagnosed in children, can affect people of any age. Unlike Type II Diabetes, which results from an improper response to insulin, Type I Diabetics produce little to no insulin, rendering them dependent on outside sources to survive. 

According to a 2019 study published in the Journal of the American Medical Association, one in four patients have rationed their insulin use due to the high cost, with low-income Americans being far more likely to under-use. This can have fatal consequences: lack of insulin results in a condition known as diabetic ketoacidosis. Your blood sugar spikes out of control, causing your blood to become acidic. Your cells dehydrate, and your organs begin to fail, often resulting in death. Several high-profile deaths, such as the 2017 passing of Alec Smith after he aged out of his mother’s insurance, have become a rallying point for activists and politicians.

Drug manufacturers have defended themselves against criticism by highlighting their discount plans, stating that they’ve been trying to keep costs down. The reason for high prices, they claim? Pharmacy Benefit Managers (PBMs), who negotiate prices on behalf of insurers. The PBM model has drawn widespread criticism from lawmakers and consumer advocacy groups due to its lack of transparency and potential for conflicts of interest. It is this controversy that drives the next part of Biden’s proposal: one that will be highly relevant to seniors on Medicare Part D.

Biden Advocates for Medicare Prescription Drug Cost Price Negotiations

PBMs handle price negotiation for all private insurance plans, Medicare Part D included. A clause in the provision allowing for Medicare Part D prohibits the Centers for Medicare and Medicaid Services (CMS) from intervening in negotiations for Medicare Part D prices, meaning that prescription drug costs are determined behind closed doors. This sets Medicare apart from other government medical programs, such as Medicaid, as the only program unable to negotiate directly with manufacturers. In turn, this can often lead to significantly higher prescription drug costs than those of similar programs, resulting in higher premiums and copayments. 

Under the proposed changes, the Secretary of Health and Human Services (HHS) would be allowed to negotiate pricing for up to 250 prescription drugs each year, including the 125 most costly commercial drugs and all insulin products. Manufacturers who fail to participate in negotiations may face a tax penalty of up to 95 percent of the drug’s sales. 

An Out-of-Pocket Maximum for Medicare Part D

The third central provision under Biden’s proposal would create an out-of-pocket maximum of $2000 for all Medicare Part D plans. Most Medicare Part D plans require a 25 percent copay for all covered medications until you reach the “catastrophic” threshold of $7050 in 2022. After this point, your copayment drops to no more than five percent of the total cost. 

There is no upper limit to the amount you pay under the current plan, meaning you can spend thousands of dollars on medication while living on a limited income. Biden’s proposal places a hard cap on out-of-pocket spending: after you spend $2,000 out-of-pocket, your insurer must cover all further costs. This can save Part D beneficiaries thousands of dollars each year.

When will we see these provisions?

The Build Back Better Act covered many more things than healthcare, which ultimately led to its demise. Senator Joe Manchin (D-WV), a chief swing vote in the Senate, rejected the bill due to various non-healthcare-related concerns, including provisions relating to the child tax credit and ongoing tensions with Russia. As opinions on the act were heavily divided along party lines, Manchin’s opposition to the bill gave opponents a narrow lead, killing the act before it could be put up for a vote.

Biden and other lawmakers have instead elected to break the monolithic Build Back Better Act into smaller components, allowing individual proposals such as the prescription drug cost reform to be debated and voted upon individually. Though no such bill has been presented at the time of writing, it is likely only a matter of time before the next iteration of these provisions is presented before Congress.

If you are currently struggling with health care prices, a Medicare Advantage plan may be able to help. These plans are often less expensive than Original Medicare and offer benefits that can reduce spending on vision, hearing, and prescription drugs. Contact one of our licensed insurance agents at (800) 950-0608 to get a free quote today.