Democrats gut Medicare to pay for Obamacare

OPINION:

As voters worry about runaway inflation and an economy on the brink of recession, Democrats are instead focused on expanding Obamacare spending and punishing drug companies.

If successful, Democrats will enact legislation that worsens inflation and kills medical innovation.

On life support since last December, Democrats are finally poised to advance their partisan reconciliation package that recklessly increases both taxes and spending. This includes West Virginia Sen. Joe Manchin, who once campaigned on repealing Obamacare and in a televised debate said, “I don’t think during a time of recession you mess with any of the taxes or increase any taxes.”

Yet Mr. Manchin now says he’s backing a bill that would impose a 95% excise tax on drug manufacturers to help fund a three-year extension of boosted Obamacare subsidies.

These subsidies were broadly expanded last March by increasing benefits for households at every income level and removing the eligibility limit for premium tax credits used to purchase health insurance on Obamacare exchanges. These credits were previously cut off at incomes at 400% of the poverty line, or roughly $54,000 for an individual.

This massive expansion of Obamacare subsidies was sold to the public as “temporary COVID-19 relief” included in Democrats’ $1.9 trillion stimulus package, legislation widely recognized to have exacerbated inflation. The Federal Reserve Board of Governors acknowledges that the “impact of domestic fiscal stimulus on inflation is highest in the United States” and likely “led to supply chain bottlenecks and price tensions.”

Now Democrats are ready to add more fuel to the inflation fire.

With current subsidies expiring at the end of September, Democrats face the political liability of rising premiums for millions of Americans just before the midterm elections. This is how temporary relief becomes permanent policy.

Democrats claim a three-year extension will cost $64 billion. The true cost, however, would be much higher. Democrats rely heavily on a budget trick that defers the implementation of a Trump-era rule regarding Medicare Part D rebates to pharmacy benefit managers. The catch is that Congress already delayed the rule twice, and it’s unlikely to ever take effect. Democrats claim more $120 billion in savings that exist only on paper.

Sadly, the budget gimmicks don’t end there. Democrats claim they’ll offset their Obamacare expansion by allowing Medicare to “negotiate” prescription drug prices. By this, Democrats mean drug manufacturers will pay a 95% excise tax on prescription drug profits unless they accept price controls set by the Department of Health and Human Services.

This is a drug price “negotiation” in the same vein that walking the plank with swords drawn at your back is a swimming negotiation.

The tax itself raises precisely zero revenue. This happens, as the Congressional Budget Office details, because all manufacturers would accept the HHS-dictated price or stop selling the drug in the U.S. market entirely rather than pay the 95% tax. The tax is effectively a mandate to accept HHS-set price controls.

The actual revenue offset would then come from Medicare savings from lower prescription drug costs. But this ignores a glaring hole in Democrats’ plan regarding inflation.

Cost estimates from the CBO show that any potential savings from price controls wouldn’t kick in until 2026. Democrats, however, plan to ramp up spending on Obamacare subsidies immediately. Democrats will be deficit-spending throughout the lifetime of the three-year extension until the subsidies expire, at which point Congress will likely renew them again and continue adding to the deficit.

Beyond inflation concerns, Democrats’ move for drug price controls is a disaster on its own merits.

Price controls never work because they cause supply shortages. CBO previously warned the reduction in manufacturers’ revenue could be as high as $1 trillion over the next 10 years and would “lower spending on research and development and thus reduce the introduction of new drugs.” The agency already revised its original assessment to increase the number of drugs prevented from introduction by 50%.

Democrats claim this proposal is focused on tackling inflation yet are targeting some of the medical care prices least impacted by inflation.

According to the most recent inflation numbers, prescription drug prices rose only 0.1% in June and 2.5% in the past year. This is in the context of overall inflation reaching a 40-year high of 9.1% over the past year. For comparison, nonprescription drug prices increased by 1.2% in June and 4.7% in the last year. Democrats singled out prescription drugs for price controls despite their comparative price stability.

The truth is that Democrats required a revenue raiser for their Obamacare expansion, and the pharmaceutical industry has long been a boogeyman to the left and fit punishment. Democrats are prioritizing the longstanding progressive goal of socialized medicine at the risk of worsening inflation and harming medical innovation.

• Mike Palicz is the federal affairs manager at Americans for Tax Reform, a nonprofit organization advocating limited government and lower taxes.