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Democrats' Bad Drug Deal

Real Clear Policy

Hold on to your wallets! The same people who brought you record-high gasoline prices—i.e., President Joe Biden and the Democrats, not Vladimir Putin—now want to make prescription drugs "affordable." Does that mean that, like gasoline, we'll be paying twice as much for prescription drugs as we did a year earlier? Maybe, if they pass their new bill.

Their plan is a new spending bill that would radically alter Medicare's prescription drug benefit and hand billions of deficit-boosting dollars to the health insurance industry. Here's how.

The Affordable Care Act, better known as Obamacare, provides health coverage through Obamacare exchanges to some 12 million to 14 million people.

President Barack Obama had promised Obamacare would lower health insurance premiums. That never happened. Obamacare premiums exploded. But most people didn't realize that because taxpayers have been subsidizing most of the cost of their coverage.

Historically, those with incomes below 400% of the federal poverty line—about $111,000 for a family of four in 2022 dollars—were eligible for those subsidies.

The American Rescue Plan, which Biden signed just weeks after coming into office, temporarily increased subsidies to most people under those income levels and, for the first time, expanded Obamacare subsidies to upper-middle income people making more than 400% of the poverty level.

Those enhanced and expanded subsidies were a pandemic-related effort intended to help those who were financially struggling. But canceled jobs aren't the problem today, it's trying to fill all the job openings.

Those additional subsidies come to a screeching halt at the end of this year. As a result, people with Obamacare will be getting notices explaining their premiums will be going up significantly in 2023. The notices will hit mailboxes this fall, right before the midterm elections. You can see Democrats' problem.

Congressional Democrats are pushing to extend the expanded subsidies, a clear indication that they intend to make them permanent—as their policy objective has long been for Uncle Sam to pay for every American's health care.

To help offset the cost of these extended subsidies, the Democrats would empower Medicare to "negotiate" drug prices. But don't be deceived; "negotiations" is a euphemism for price controls. Drug companies that don't agree to the government's offer will be assessed a "non-compliance fee" that quickly rises to 95% of a drug's total sales revenue.

That's not total profit, mind you, but 95% of all revenue from a drug's sales.

Given manufacturers won't know what the government's "negotiated" price will be until the drug exists, many new, potentially life-saving drugs will never be developed.

The Democrats' Medicare drug plan also eliminates a Trump-era reform that would have ensured that rebates drug companies are forced to pay to pharmacy benefit managers (PBMs) and health insurers would go to patients in the form of lower drug prices.

Got that? The one plan that would actually lower the price of prescription drugs to you, the consumer, has been quashed—by Democrats.  

Now, here's the real irony.

According to the Bureau of Labor Statistics, drug prices are up just 2.5% over the past year, considerably less than, well, just about everything—and especially gasoline. If President Biden actually knew how to lower the price of anything, don't you think he would have done it by now?

Meanwhile, extending the Obamacare subsidies would cost the government about $74 billion over the next three years, or $220 billion over a decade. So while the Federal Reserve Bank is trying to reduce the money supply in order to counter the economy's roaring inflation rate, Biden is trying to pump more money into the economy.

Not only would such a deal exacerbate short-term inflation, it would add to the $30 trillion national debt.

A future Congress could easily delay or reverse the partisan price controls, but it'd be far more difficult to end subsidies after people have grown dependent on them.  

It's understandable that Democrats want to accomplish something—anything—ahead of the midterm elections. But this plan won't just cost taxpayers and patients more money. It could cost them their lives.