CBO Estimates Drug Savings for Reconciliation

The Congressional Budget Office (CBO) released estimates of the draft text for a prescription drug package that could be part of an upcoming reconciliation bill.  CBO estimates these provisions would reduce the deficit by $287 billion through 2031, with $321 billion in gross savings and $34 billion in new spending.

CBO finds the proposal would save approximately $100 billion from requiring Medicare to directly negotiate certain drug prices, another $100 billion from capping drug price growth at the inflation rate, and $120 billion from the repeal of the Trump-Era drug rebate rule. Though these provisions alone would lower beneficiary costs, the legislation would further lower costs through a redesign of the Medicare Part D formula, expansion of the low-income subsidy (LIS) in Part D, and federal coverage for vaccines.

CBO’s Estimates of Updated Prescription Drug Policies

Policy Ten-Year Savings (2022-2031)
Negotiate Select Prescription Drug Prices  $99 billion
Limit Medicare Drug Price Growth to Inflation  $62 billion
Limit Commercial Drug Price Growth to Inflation  $38 billion
Repeal Trump-Era Drug Rebate Rule $122 billion
Subtotal, Gross Savings  $321 billion
Re-design Part D Benefit, Expand LIS, and Cover Vaccines -$34 billion
Total Net Savings $287 billion
   
Memo: Reductions in National Health Expenditures  ~$500 billion*

Source: Congressional Budget Office *Calculations are based on estimates of the House-passed version. Actual effect may differ. 

The package is similar to the drug savings from the House-passed Build Back Better Act, which would have also saved about $280 billion. However, this version includes more aggressive drug negotiations -- including requiring rather than allowing drugs to be negotiated -- and it saves more through its inflation cap. Through a proposed benefit redesign, the legislation also does more to lower premiums for beneficiaries; and it further subsidizes cost-sharing by offering low-income subsidies (LIS) to those with income up to 150 percent of the poverty rate as opposed to 133 percent. Compared to the House bill, this version also offers new coverage for vaccines, removes an insulin-specific cap on copayments, and ensures negotiated prices are excluded from Medicaid discount calculations to limit price increases in Medicaid.

In addition to lowering federal health care costs, we expect these provisions would substantially reduce premiums and out-of-pocket costs for seniors. We estimated the House version would have reduced total national health expenditures by $500 billion through 2031 and $600 billion through 2032. We expect a similar reduction from this version. CBO also estimates the legislation will reduce the number of new drugs introduced in the U.S. market by about 15, out of 1,300, over the next three decades.

Along with the recent proposal to expand the net investment income tax and Medicare self-employed contribution act (SECA) tax, this proposal would help improve the sustainability of Medicare and reduce federal budget deficits.

Updated (7/18/2022): The number of drugs expected to not enter the market was updated to reflect CBO changes.