Biden said Medicare drug price negotiations 'cut the deficit by $160B,' but it's years away

“We cut the federal deficit by $160 billion because Medicare will no longer have to pay those exorbitant prices to Big Pharma.” – President Joe Biden in his State of the Union address, March 7, 2024

President Joe Biden has been making his case for reelection to voters by telling them he is good for their pocketbooks, including at the pharmacy counter.

During his State of the Union address, Biden said legislation he signed gave Medicare the power to negotiate lower prescription drug prices.

“That’s not just saving seniors money and taxpayers money,” Biden said, a reference to the Inflation Reduction Act, which passed in 2022. “We cut the federal deficit by $160 billion because Medicare will no longer have to pay those exorbitant prices to Big Pharma.” 

Biden added, “This year, Medicare is negotiating lower prices for some of the costliest drugs.” He called for giving Medicare the power to negotiate prices for 500 drugs over the next decade.

In August, the federal government announced the first 10 drugs that it will negotiate for lower prices as part of the Inflation Reduction Act. A respected source of legislation analysis projects the change will save the government a lot of money, but those dollars haven’t been realized.

There is a reason Biden touted this legislation during his address: Polling by KFF shows that people, regardless of their political leanings, overwhelmingly support the idea of allowing Medicare to negotiate drug prices. But most people don’t know that such negotiations are underway.

Impact of Inflation Reduction Act will take many years

In August 2022, Biden signed the Inflation Reduction Act, which will allow the federal government to negotiate prices with drugmakers for Medicare. Biden kept his promise to repeal the law that barred Medicare from negotiating prices.

The nonpartisan Congressional Budget Office projects a 10-year cumulative savings of $161.7 billion from two provisions of the law: a phased-in effort to negotiate with drugmakers for lower prices and a rebate for price increases above the overall inflation rate. (The White House has previously pointed to this analysis.)

However, not all the savings will be permanent. About $44.3 billion over 10 years will be funneled into related provisions that expand access and lower out-of-pocket costs for Medicare beneficiaries.

“Negotiations are still ramping up, so the savings generated by the Inflation Reduction Act negotiation provisions are still in the future,” said Matthew Fiedler, a Brookings Institution expert on the economy and health studies. “The Congressional Budget Office did expect the inflation rebate provisions of the IRA (which are encompassed in the $160 billion) to begin generating modest savings during 2023 and 2024, but there, too, most of the savings are in the future.”

The legislation involves price negotiations for 10 brand-name medications that lack generic equivalents. Those drugs include the blood thinners Eliquis and Xarelto; the diabetes drugs Januvia, Jardiance, and NovoLog; Enbrel, for rheumatoid arthritis; the blood-cancer drug Imbruvica; Entresto, for heart failure; Stelara, for psoriasis and Crohn’s disease; and Farxiga, a drug for diabetes, heart failure, and chronic kidney disease.

The CBO has estimated that the negotiated prices will translate to nearly $100 billion in federal savings from 2026 to 2031.

“Biden is jumping the gun on claiming savings for seniors,” said Joe Antos, an expert on health care at the conservative American Enterprise Institute. “Price negotiations haven’t been completed; the new prices for selected drugs aren’t in place until 2026.”

Biden said the legislation is “saving seniors money and taxpayers money,” which could be interpreted to mean it is saving them money now on prescription drugs. But the negotiations for these drugs would define the prices to be paid for prescriptions starting in 2026. For 2027 and 2028, 15 more drugs per year will be chosen for price negotiations. Starting in 2029, 20 more will be chosen a year.

That said, other provisions in the legislation have already led to savings for seniors, said Tricia Neuman, a senior vice president at KFF:

• Certain recommended adult vaccines covered under Medicare Part D, such as shingles, are covered at no cost.
• The act established a cap on Part D spending that begins phasing in this year. This year, Part D enrollees will pay no more than $3,300 on brand-name drugs. In 2025, the cap for all covered Part D drugs drops to $2,000.
• The Inflation Reduction Act included the $35-a-month insulin cap, improvements in coverage for low-income beneficiaries, and the inflation rebate.

When we pressed the White House to provide examples of savings that have already occurred, a spokesperson pointed to the insulin cap.

Related: Key takeaways from President Biden’s State of the Union speech

Meanwhile, Antos said that although the Part D rebate has kicked in, the savings come from a small subset of Part D drugs taken by older Americans and that the government reaps the savings, not older Americans.

“There is no reason to expect that seniors will see significant savings since there’s no obligation for the feds to distribute savings to Part D enrollees,” Antos said.

Final ruling

Biden said, “We cut the federal deficit by $160 billion because Medicare will no longer have to pay those exorbitant prices to Big Pharma.”

Biden’s statement omits the time frame; the savings have not been realized. The CBO projected 10-year cumulative savings of $161.7 billion from two provisions of the legislation. And as for saving older Americans money on their prescriptions, that hasn’t happened yet. The federal government is negotiating the first 10 drugs with the new prices set to take effect in 2026.

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