President Joe Biden on Tuesday introduced a series of proposals that would shore up Medicare’s finances by raising taxes on the nation’s highest earners while giving the program more leverage over prescription drug prices.
The White House plans to include the proposals ― which would also make some drugs and mental health visits cheaper for individual Medicare beneficiaries ― in the budget document it formally submits to Congress on Thursday. And in that sense, these proposals are mostly aspirational.
Congress writes and approves the budget, which in turn guides federal spending. With Republicans in control of the House, few political observers expect much (if any) of this new Medicare agenda to become law in the immediate future.
But another goal of these proposals is to highlight the contrast between what Biden would do if he had the votes and what the GOP would prefer to do instead. It’s a pretty stark contrast ― one that could loom large in coming clashes over fiscal policy, not to mention the 2024 elections.
A Key Difference Between The Parties
Republicans have a long history of hostility to Medicare, dating back to the early 1960s when actor (and future president) Ronald Reagan warned that enacting the program would lead to all-out socialism. And at the moment, Republicans are threatening to block an increase in the government’s borrowing authority, possibly precipitating an economic crisis, if Biden and Democrats don’t acquiesce to significant spending cuts.
GOP leaders have repeatedly said they have no interest in touching Medicare right now. But some high-profile Republicans, like Sen. Rick Scott (Fla.), have floated or endorsed Medicare cuts in the last year.
Conservatives who favor these sorts of changes say they are necessary because Medicare’s long-term finances are so shaky. The Trust Fund that finances Medicare’s hospital benefit will be depleted in 2028, according to official projections; after that, incoming money will only be sufficient to cover 90% of the costs.
With his new proposal, Biden is outlining an alternative way to improve Medicare’s financial outlook, one that relies entirely on new taxes on the highest-income Americans and more aggressive efforts to control drug prices.
It would be enough to push that Trust Fund insolvency date past 2050, according to the White House, while reducing what individual seniors pay for their medical care.
“The President has a plan to extend the solvency of Medicare for at least 25 years ― for another generation, to take solvency off the table as a issue of concern ― and he does that without cutting any benefits and without making any painful changes to the program,” Christen Linke Young, deputy assistant to the president for health and veterans affairs, told HuffPost on Tuesday.
Higher Taxes On The Rich, More Power Over Drug Prices
The Trust Fund gets its money from payroll taxes that Americans pay during their working years. Biden would increase that tax from 3.8% to 5%, but only for annual incomes above $400,000.
Another plank of Biden’s plan would expand Medicare’s ability to negotiate the price of some prescription drugs. This is a new authority that the program just got last year, when Democrats passed and Biden signed the Inflation Reduction Act.
“Continuing to find ways to lower drug costs will absolutely help the poorest and sickest on Medicare.”
Under the terms of that law, a limited number of drugs are subject to price negotiation, and only after they’ve been on the market for a fixed number of years. Biden’s new proposal would increase the number of drugs and reduce that time lag.
Biden’s proposal would also extend the new law’s penalties for big year-to-year price increases to the private sector. Right now, those penalties only apply to drugs bought and sold through Medicare.
The original version of the Inflation Reduction Act’s drug negotiation provision included these features. But Biden and Democratic leaders had to scale them back in order to secure votes from holdouts like Sen. Kyrsten Sinema (I-Ariz.).
Even so, those concessions weren’t enough to draw support from Republicans, who have traditionally opposed giving the federal government leverage over drug prices.
Trade-Offs And The Debate Over Innovation
Biden’s proposals would mean more money coming in to Medicare and less money going out ― and they drew quick praise from senior Democrats on Capitol Hill.
“President Biden’s plan is proof positive that Medicare’s guarantee of quality health care for older Americans can be secured for the next generation without raising the eligibility age, cutting benefits, or handing over the program to big insurance companies,” Senate Finance Chair Ron Wyden (D-Ore.) said, before upping a dare that he and other Democrats have made before.
“If Republicans want to have a debate on federal spending, it is now their responsibility to show their plan to the American people, instead of threatening to hold the nation’s economy hostage while making vague demands,” Wyden said.
All policies have trade-offs. And in this case, the trade-offs include not just higher taxes on the wealthy, which conservatives argue are unjust and bad for the economy, but also more government control over drug prices, which critics say could deter innovation and hinder development of new breakthrough drugs.
Biden, the Democrats and their allies say the effects on innovation would be minor or nonexistent, especially since the U.S. would still have the highest drug prices among economically advanced countries even if the new proposals were to take effect.
But some experts warn that simply by proposing increases in the federal government’s drug negotiating power, Democrats could give investors new reasons to think twice about putting money into the pharmaceutical industry.
“Firms are trying to predict what the market will look like 7-10 years in advance,” Northwestern University economist Craig Garthwaite tweeted on Tuesday. “Continuing to send signals that price controls will expand ends the talking point that this is a ‘limited’ effort.”
More Help For Seniors With Chronic Conditions
Biden’s proposal would also reduce out-of-pocket costs for Medicare beneficiaries who take drugs for chronic conditions like diabetes and hypertension. Under the plan, Medicare would limit co-pays for generic versions of these drugs to $2 per prescription.
“With companies like Amazon offering low-cost generic drugs, it raises questions about why the government can’t do the same thing for Medicare,” Gretchen Jacobson, vice president of the Commonwealth Fund’s Medicare program, told HuffPost. “Continuing to find ways to lower drug costs will absolutely help the poorest and sickest on Medicare.”
Young said that the proposal on generic drugs for chronic conditions reduces confusion and mix-ups, which are common today because patients, doctors and sometimes even pharmacists have a hard time figuring out which plan covers which drug. When that happens, patients can pay more than they should ― or simply skip medications because they cost too much.
“What we’re proposing to do here is to say that, across the board, there are $2 co-pays for this set of high-value, low-cost generic drugs most seniors are taking at some point in their lives,” Young said. “Not only are we saving money from people who are paying too much right now, but we are also dramatically simplifying the system, so that patients and doctors can ... have confidence that these medications are going to be cheap and affordable.”
Another key provision of the Biden proposal would eliminate out-of-pocket expenses for up to three mental health visits a year, while expanding mental health coverage to include peer support workers, certified addiction counselors and other types of providers. A version of that proposal was also in last year’s White House budget.
Republicans on Tuesday were not rushing to microphones to comment on Biden’s proposal, which perhaps has something to do with the politics of Medicare ― and the sense that, right now, they don’t have the public’s trust. But one Republican told HuffPost that a serious effort to shore up the program’s finances will have to involve some kind of compromise, with more conservative ideas as part of the mix.
“That’s not going to happen, obviously, he knows that,” Sen. Mitt Romney (R-Utah) said of Biden’s proposal. “Republicans are not going to sign up for raising taxes. If there’s a way to permanently provide for Medicare, it’s going to require a give-and-take by Republicans and Democrats ... it means both sides have to get something. If Democrats want to raise taxes, we’ve got some other ideas.”
Igor Bobic contributed reporting to this article.