Imagine taking your elderly parent to the pharmacy to refill their prescription and finding out that not only is the drug not covered by their plan, but the price has gone up 1,900 percent. You knew inflation was bad, but this is something else. Unfortunately, this nightmare scenario may become all too real for many Americans because of a little-known provision of the ironically named Inflation Reduction Act.
Most Americans aren’t aware that the Inflation Reduction Act gave the Department of Health and Human Services (HHS) the authority to dictate Medicare’s prices for a select list of medications. A drug manufacturer has 30 days to provide reams of internal data to HHS, and then HHS responds with a so-called “maximum fair price.” But should the government and a drug company fail to agree on price, the company has two choices: agree to the price anyway, and potentially take a huge loss selling the medication, or become a direct enforcer of the IRS by charging and collecting a 95 percent excise tax — not just for Medicare, but for all sales of the drug.
I am a health insurance broker who negotiates with insurance companies and healthcare providers for a living. A key part of what I do is offer employers, their employees, and consumers the opportunity to manage their financial and health risks. But when the government rips away access to needed medications, that endangers folks’ health and increases the chance of hospitalization or death. It leaves innocent people in the lurch and hamstrings the ability of insurance brokers to find plans that fit our clients’ specific needs.
This new policy is a price control masquerading as a negotiation. Threatening a company with sanctions and taking an “or else” approach isn’t negotiating, it’s bullying. The federal government knows this because drugmakers already negotiate prices with employers and insurance companies and offer a multitude of discounts and rebates — including programs to provide medications at reduced cost or with zero copay.
This policy won’t just affect rich drug companies. Situations like the opening story will have a devastating effect on a lot of fixed-income seniors if the medications they depend on fall through the negotiation cracks. Medicare recipients who have diabetes (nearly 1 in 5 Americans over age 65), are at risk for stroke (which kills one American every 3 minutes and 14 seconds), or battling cancer will be forced to pay out of pocket until the manufacturer comes into compliance. It’s no exaggeration to say this policy will cost lives.
The IRS issued guidance on collecting this excise tax in August, and independent legal analysis confirms that the excise tax starts at 95 percent but could reach up to 1,900 percent of the drug’s price. That’s right — Democrats’ approach to reducing drug prices is attempting to force a given price down a drug company’s throat and, failing that, to levy a crushing tax on the people who need that medicine, the same way the government taxes cigarettes, beer, and liquor. Only in Washington could forcing industry to do the IRS’s dirty work be credibly called a “negotiation” to reduce prices. An apt term for this new policy is “price control,” a redistributive policy that reduces the supply available to consumers..
Economists are generally opposed to price controls because when governments, who know little about the ins and outs of an industry, invade that industry to set prices utterly divorced from reality, they destroy the profit motive for entrepreneurs and wealth-creators to innovate and invest. That means a grave misallocation of resources — in this case, a shortage. Companies cut their losses and stop production, and then people who need their products can’t get them at any price.
Leaders from both parties have widely agreed that reducing prescription medication prices is an important national priority, but we differ on how to do it. It’s important not to cause harm in the process of hashing out the details. Unfortunately, harm through policies that raise prices — and don’t reduce inflation — seems to be the administration’s M.O.
Meanwhile, we inconceivably keep hearing this legalized shakedown referred to as “negotiation.” It recalls the famous words of the “Princess Bride” character Inigo Montoya: “You keep using that word. I do not think it means what you think it means.”
Matt Cover was a D.C.-based political journalist who now helps businesses navigate insurance needs and provide for their employees.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.