Trump’s Drug Rebate Plan Would Cost Medicare Billions: CBO

Plus, why the latest infrastructure plan is headed for a ditch

Trump’s Drug Rebate Ban Would Cost Medicare $170 Billion: CBO

The Trump administration’s proposal to crack down on rebates paid by drug manufacturers to middle men probably won’t lower prices for consumers, a Congressional Budget Office report said Thursday. At the same time, the plan would increase Medicare and Medicaid spending by billions of dollars while providing a nice boost to pharmaceutical firms’ bottom lines, CBO said.

The proposal: In January, the U.S. Department of Health and Human Services said it wants to curtail drug-price rebates paid to pharmacy-benefit managers, or PBMs. Drug companies use the rebates in part to achieve favorable placement on lists of medicines covered by insurance plans and administered by the PBMs. But those rebates play an important role in driving drug prices ever higher, with HHS estimating that they account for as much as 30 percent of a prescription drug’s retail price.

The desired effect: The Trump administration said that eliminating the rebates (by excluding them from “safe harbor” protections under the Anti-Kickback Statute) would reduce drug prices. HHS also proposed to allow rebates to be paid directly to consumers, further lowering effective prices.

The expected result: CBO said that drug manufacturers were unlikely to lower prices following a rebate ban and would instead find a new way to keep the payment system operating: “CBO expects that rather than lowering list prices, manufacturers would offer the renegotiated discounts in the form of chargebacks,” the report said, with those new payments equal to about 85% of the rebates currently being paid.

Drugmakers would keep the other 15% of the rebates for themselves, CBO said, based on consultations with stakeholders and other experts.

Federal health care spending would be affected, CBO said, with Medicare costs rising by $170 billion between 2020 and 2029. Currently, health plans may use the drug rebates to reduce premiums, and those premiums would rise in their absence. “Because the government subsidizes 74.5 percent of the basic beneficiary premium, higher premiums would lead to larger federal subsidies, thus increasing federal spending,” CBO said.

Medicaid spending would also rise, by about $7 billion over 10 years.

The bottom line: The rule is scheduled to take effect in 2020. According to the federal government’s budget analysts, the Trump administration’s proposal to eliminate drug rebates would fail to reduce drug prices and would increase Medicare and Medicaid spending by about $177 billion over 10 years.

Chart of the Day: High Deductible Blues

The higher the deductible in your health insurance plan, the less happy you probably are with it. That’s according to a new report on employee-sponsored health insurance from the Kaiser Family Foundation and the Los Angeles Times.

Why the 'Big and Bold' $2 Trillion Infrastructure Plan Is Headed for a Ditch

Democratic leaders said this week that President Trump had agreed to pursue a “big and bold” $2 trillion infrastructure package. There are plenty of reasons to be skeptical that a deal that size will pass this year — or that the announcement is anything more than political theater.

“Infrastructure Week should get back on track once President Trump agrees to unwind his tax cuts AND locates an additional $1T to fund the proposed $2T in increased infrastructure spending...and that was before the Robert Mueller letter to Attorney General William Barr became public,” strategist Chris Kruger of the Cowen Washington Research Group wrote in a Friday note to clients, tongue firmly in cheek.

His takeaway: “Impeachment is more likely than infrastructure.”

The proof that the latest infrastructure push is likely to roll into a roadside ditch before long was right there in Tuesday’s announcement. “The ball is in the president’s court to come up with pay-fors,” Senate Minority Leader Chuck Schumer told TV cameras outside the White House after meeting with Trump. "We told him unless he is willing to come up with the pay-fors for this large package, it will never get done.” Schumer called for rolling back some of the GOP’s 2017 tax cuts as a precondition for looking at increasing the gas tax. Trump’s not likely to agree to that.

An Old Story

It’s the same roadblock that has prevented progress on infrastructure for years. Everyone says they want to tackle infrastructure. It’s much harder to reach agreement on just how much the federal government should spend or how it should be paid for. And simply pushing ahead with an infrastructure package that adds to annual deficits is seen as politically unrealistic.

“GOP lawmakers say the president’s grand proposal for a $2 trillion deal is too ambitious and warn that they will oppose any measure that adds to the deficit,” The Hill reports. “Many Republicans also say they are against raising taxes to pay for an infrastructure initiative, a stance that would make it extremely difficult to find money to finance a package even half the size of Trump’s desired amount.”

New York magazine’s Eric Levitz notes that Republicans accept that deficit-financed tax cuts can pay for themselves despite a lack of empirical evidence to support the notion, but they are quick to dismiss borrowing to pay for investments in “productivity-enhancing infrastructure.” GOP lawmakers have floated a number of other ways to pay for an infrastructure package without raising taxes, like selling off distressed government assets, an idea that has gotten some bipartisan backing.

The Play Resumes Later This Month

Trump and Democratic leaders plan to meet again in a few weeks to discuss how to pay for their infrastructure plan, so we may find out then if the president supports that idea or others. Either way, given all the obstacles an infrastructure deal faces, don’t bet on one happening anytime soon.

The gridlock, paradoxically, leads lawmakers to get even more ambitious, as the Tax Policy Center’s Howard Gleckman notes: “If you are not really going to pass a bill, you may as well not pass a $2 trillion bill,” Gleckman explains. “And if you are going to blame the other guys for failing to pass the bill, you might as well hammer them for blocking a $2 trillion jobs bill.”

The political show must go on.

Your Prize for Making It Through the Week

Since tomorrow is Star Wars Day (May the Fourth) and in honor of Peter Mayhew, the actor who originally played Chewbacca and died this week at the age of 74, check out The Washington Post’s new examination of “one of the great debates in Star Wars lore:” Why didn’t Chewie get a medal along with Luke Skywalker and Han Solo after the destruction of the first Death Star?



Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please urge your friends to sign up for this newsletter.

News

Views and Analysis