Study Estimates New Framework for Medicare Negotiation Would Increase Federal Revenues by $100 Billion
Analysis of revisions to H.R. 3 estimates lower commercial market premiums and out-of-pocket costs
WASHINGTON, DC – NOVEMBER 3, 2021 – As Congress revises legislation to reform prescription drug pricing, a new analysis conducted by the West Health Policy Center, and released by its Council for Informed Drug Spending Analysis (CIDSA), estimates that extending inflation penalties to the commercial market could result in hundreds of billions of dollars in lower commercial health insurance costs by 2030. These savings would increase workers’ take-home pay, therefore resulting in increased federal tax revenues. This new analysis projects that these commercial inflation penalties would increase federal tax revenues by an additional $96 billion to $107 billion.
The non-profit, non-partisan West Health Policy Center and its researchers qualified the impact on federal revenues using data sources that include a commissioned analysis performed by the actuarial firm Milliman. Milliman’s analysis, commissioned by the West Health Policy Center, focuses on the impact of proposed changes to healthcare expenditures of various stakeholders. The data in this press release is from the West Health Policy Center analysis.
The original text of the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) would empower the Secretary of Health and Human Services to directly negotiate prices with drug manufacturers and make those same negotiated prices available to all Americans with private insurance. H.R. 3 would also require drug manufacturers to pay a rebate to the federal government for price increases above the rate of inflation, but only on drugs paid for under federal programs.
In September 2021, the House Committee on Ways and Means revised H.R. 3 to calculate inflation penalty rebates on drugs paid for by both the federal government and commercial insurance plans. These changes therefore would extend inflation protections to the commercial market. While the Congressional Budget Office has estimated the impact of the original version of H.R. 3 on federal direct spending and revenues, CBO has yet to publicly estimate the effect of these revisions. The West Health Policy Center analysis is the first-of-its-kind to do so, building from an earlier analysis that estimated savings to the commercial market.
Based on West Health Policy Center’s analysis, the original version of H.R. 3 would only generate $56 billion in increased federal revenues through greater payroll taxes. However, if these inflation protections are extended to the commercial market, federal revenues are estimated to increase to as much as $163 billion. Alternatively, West Health Policy Center considered a scenario where negotiated prices are not available to the commercial market, but inflation protections are still applied. Under this scenario, federal revenues would increase by $152 billion.
“Protecting workers from drug price increases is a win for everyone – it reduces employers’ premium costs, increases workers’ take-home pay, and provides new federal revenues that can enhance health care benefits,” said Sean Dickson, Director of Health Policy at the West Health Policy Center and CIDSA Chair, who conducted this analysis. “For too long, the high price of drugs has crowded out spending on additional health care priorities, but these proposed restrictions on price increases can both lower costs and enable new health services.”
To estimate federal revenues from Milliman’s overall savings estimates, West Health Policy Center used the methodology from a previous analysis to estimate commercial savings as well as the approach from the Health Savers Initiative to estimate changes in federal revenues. Milliman’s full assessment and white paper can be found here.
About the West Health Policy Center and West Health
Solely funded by philanthropists Gary and Mary West, West Health is a family of nonprofit and nonpartisan organizations including the Gary and Mary West Foundation and Gary and Mary West Health Institute in San Diego, and the Gary and Mary West Health Policy Center in Washington, D.C. West Health is dedicated to lowering healthcare costs to enable seniors to successfully age in place with access to high-quality, affordable health and support services that preserve and protect their dignity, quality of life and independence. Learn more at westhealth.org and follow @WestHealth.
CIDSA, the Council for Informed Drug Spending Analysis, is a nonpartisan expert group funded by West Health and focused on bringing a non-pharma perspective to drug spending policy dialogue. Learn more at www.cidsa.org and on Twitter at @CIDSAexperts.