Build Back Better Act’s drug inflation rebate would lower premiums by $111B over a decade

A new analysis estimates that introducing inflation rebates on most prescription drugs — a provision of the Build Back Better Act, which was passed in November by the U.S. House of Representatives — would lower employers’ health insurance premiums by $111 billion over the next decade.

Researchers at the nonprofit Urban Institute said that “limiting annual increases in drug prices through inflation rebates improves access to regular care and affordability, while generating billions of dollars in savings for the federal government and private insurers.”

“Approximately half of the people in America are covered by employer-sponsored health insurance,” Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation (which funded the analysis), said in a statement. “Lowering the cost of prescription drugs lowers the cost of insurance premiums. That puts more money in the pockets of working families.”

As Michael Simpson and John Holahan wrote in their research brief, the inflation rebates that are part of the act “would apply to all drug purchasers except Medicaid, including employer-sponsored insurance (ESI) plans, other commercial insurers, and Medicare. However, this provision has received relatively little attention.”

Among other findings of the analysis by Simpson and Holahan:

• The Build Back Better Act’s drug inflation rebate provision would reduce premiums by $3 billion (0.4%) in 2023 and $21 billion (1.7%) in 2031.
• Premiums would fall by 0.4% in 2023 and 1.7% in 2031.
• The average annual reduction in premiums between 2022 and 2031 would be 1.1%.

The Urban Institute notes that the above estimates assume employers’ savings on insurance premiums are passed on to workers in the form of higher wages; researchers estimate higher wages consistent with Congressional Budget Office’s revenue projections. If employers’ savings are not fully passed on to workers, premium savings would be larger.