Democrats’ Plan Would Lower Drug Costs for Older Adults

Number of the Day: The most relevant or interesting figure in personal finance

$2000

That’s the most older adults using Medicare’s drug coverage would have to pay for their prescriptions each year under a proposal by Democratic lawmakers to allow the government to negotiate prices with drugmakers.

The proposed out-of-pocket cap on drug prices—far less than the current $7,050 maximum before “catastrophic” coverage kicks in for 2022—is part of an agreement announced by the White House Tuesday that would include a provision in a spending bill currently being drafted to allow Medicare to negotiate drug prices with pharmaceutical companies. The program is currently barred from negotiating prices for the drugs it pays for, but the proposed law would allow it to negotiate prices of 10 drugs beginning in 2023, with the new prices taking effect in 2025, and the number of drugs being negotiated eventually increasing to 20 each year.

The government could reduce prices by 57% and 75% on the cost of each drug by negotiating, according to an estimate earlier this year by the Congressional Budget Office (CBO). This would save participants in Medicare Part D (Medicare’s optional drug coverage) money, since beneficiaries pay for some of the cost of the medications they use. But there’s a trade-off: With drugs generating less money, there could be less reason for pharmaceutical companies to develop new ones. Under a previous, more expansive drug negotiation proposal, drugmakers would develop eight fewer new medicines by 2029, the CBO predicted in a paper in August.

The proposed new law would also reduce seniors’ cost sharing in general and cap insulin costs for Americans with diabetes at $35 a month. It’s not a done deal, however. While the White House said Democratic lawmakers have agreed to a framework for the $1.75 trillion spending bill, they are still working out the details and have yet to pass anything concrete. Congress approving President Joe Biden’s signature “Build Back Better” spending plan is a touch-and-go proposition, since Democrats need the support of all 50 of its senators to pass the bill, including Joe Manchin and Kyrsten Sinema, who have demanded cutbacks and negotiated the size of the bill down from previous versions.

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