Ge Bai, PhD, CPA, is a Professor of Accounting at the Johns Hopkins Carey Business School and Professor of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health.
The Inflation Reduction Act of 2022 introduced significant changes to the Medicare Part D prescription drug program, affecting tens of millions of seniors and other Medicare beneficiaries. Early evidence has now emerged, offering the public a glimpse into the law’s scorecard.
The law changed certain benefit designs for Medicare Part D standalone prescription drug plans, including a lower cap on out-of-pocket spending and a new cap on premium growth rates. These changes were initially estimated to cost taxpayersHowever, a low out-of-pocket cap increases utilization of expensive drugs and restricts insurance plans’ ability to steer patients toward more cost-effective treatment options, thus inflating premiums.
The negative consequences extend beyond the federal budgetary impact. Recent analyses have demonstrated the chilling effect of the law onMeanwhile, a lower out-of-pocket cap reduces patients’ price sensitivity, increasing revenue for drug manufacturers and discouraging them from lowering prices. In effect, the law has conflicting financial impacts on the biopharma industry and sends two problematic messages: don’t invest in new drugs and don’t lower your prices.
To sum up, as early evidence shows, the drug provisions in the Inflation Reduction Act are unlikely to generate savings for taxpayers, while disrupting the Medicare Part D market and creating perverse incentives for the biopharma industry. If the goal is to improve drug access for low-income Medicare beneficiaries, this law represents a cautionary tale for future policymaking. Rather than detaching patients from their healthcare dollars and imposing price controls,Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.
Inflation Reduction Act Medicare Part D Premium Pharma Biotech Prescription Drug Spending
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