CLOSE MENUOver the seven-year study period, West Health estimates Medicare negotiation under H.R. 3 would:
Rising prescription drug costs are a major concern for consumers and businesses alike. In recent years, the cost of list prices for branded pharmaceutical products increased by 159%, with few signs of it slowing. As a result, Americans are making tradeoffs to afford their medications – cutting back on household spending or at times forgoing treatment all together. To adjust course, lawmakers are considering several policy options, including allowing the federal government to negotiate the price of prescription drugs. One key proposal, the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), would address the high cost of prescription drugs and limit future price increases.
Title I and Title II of H.R. 3 address drug prices in two separate approaches. Title I, the “Lowering Prices Through Fair Drug Price Negotiation” provision, would empower the Secretary of Health and Human Services (HHS) to negotiate prices directly with drug manufacturers for up to 250 of the costliest single-source brand drugs on the market. Negotiations would begin in 2023 and then each year thereafter HHS would establish a list of eligible drugs for which manufacturers would be required to negotiate prices. Title II, the “Medicare Parts B and D Prescription Drug Inflation Rebates” provision, would require manufacturers to limit price increases to the rate of inflation by paying any greater price increase back as a rebate.
While Title II does not directly apply to the commercial market, it relies on commercial market prices to establish the Medicare inflation rebates, which existing research has suggested is likely to limit price increases in the commercial market.
The West Health Policy Center commissioned a study by Milliman to analyze the impact of Title I and II of the Elijah E. Cummings Lower Drug Costs Now Act on net claims costs in the commercial market. At West Health’s request, Milliman’s analysis considered several different scenarios, including one where drug manufacturers take price increases above historical trends to offset revenue reductions under Medicare negotiation. Milliman modeled changes in net claims costs, including both medical and drug spending, both under current Pharmacy Benefit Manager (PBM)rebate trends and modified PBM rebate trends that account for higher price increases. Under the latter scenario, Milliman estimated that total commercial market claims would be 2.5% lower, on average, by 2029.
Milliman also assessed the relative share of commercial drug spending that would be subject to negotiated prices under Title I of H.R. 3. Milliman estimates that in 2026, 46% of projected drug spending under current trends would be subject to negotiation. Because these drugs would be subject to negotiation, price increases would also be limited to the rate of inflation under Title I of H.R. 3, limiting the overall share of drug spending on which drug manufacturers could raise prices.
West Health Policy Center independently estimated the dollar savings of H.R. 3 on the commercial market, using both Milliman’s parameter estimates as well as other data sources (outlined in the Methodology section). Under H.R. 3, West Health estimates that employers could see a $195 billion reduction in health care spending, while employees could see $61 billion in lower costs ($53 billion in lower premiums and $8 billion in lower out-of-pocket costs). Total costs for the ACA market could fall by $58 billion, including $34 billion in lower beneficiary premiums, $2 billion in lower cost-sharing, and $21 billion in federal savings through reduced Advance-Premium Tax Credits. Even though this scenario presumes that manufacturers will increase drug prices at a faster rate than current trends to make up for lower prices on negotiated drugs, the lower prices achieved under Title I of H.R. 3 outweigh these price increases. These estimates are likely conservative, as they assume PBMs and plan sponsors will be unable to limit net price increases to current trends.
Though primarily targeting Medicare, West Health projects the Elijah E. Cummings Lower Drug Costs Now Act will yield significant cost savings for employers and employees. Even in the most conservative scenario, where manufacturers take historically-unprecedented price increases to offset lost revenue, employers and employees would still save over $250 billion in lower costs.
To estimate dollar savings for individuals and employers from Milliman’s overall savings estimates, West Health used data from National Health Expenditures (NHE),the Kaiser Family Foundation Employer Health Benefits Survey (EHBS), and the Medical Expenditure Panel Survey (MEPS).
NHE Private Health Insurance spending data from 2023 to 2028 was projected to 2029 using a 5% annual increase, the mean increase in NHE projections from 2019 to 2028. Because Milliman’s annual estimated changes in commercial market claims cost include employee cost-sharing (which is excluded from NHE Private Health Insurance spending data), the annual estimated change was adjusted by the ratio of Milliman’s estimated Affordable Care Act (ACA) member cost-sharing savings to premium savings (Member Premium and Federal Government), which West Health assumes tracks the distribution of costs in the employer-sponsored market. The adjusted annual changes were applied to the annual projected NHE data over the period.
Because NHE Private Health Insurance spending data includes ACA plans, the estimated reduction in private health insurance spending was reduced by Member Premium and Federal Government savings under the ACA. West Health assumed that the allocation of savings between premiums and member cost-sharing was the same in the scenario with current PBM rebate trends as well as in the scenario with modified PBM rebate trends (Exhibit 3 vs Exhibit 4). Under this assumption, West Health used Milliman’s estimate of total savings from Exhibit 4B and allocated those savings to Member Cost Share, Member Premium, and Federal Government savings using a ratio of the total savings estimated in Exhibit 3A to the total savings estimated in Exhibit 4B. For simplicity, reduced spending was assumed to be fully reflected in reduced premium costs, without accounting for any administrative load.
To estimate the reduction in cost-sharing for individuals with employer-sponsored insurance, West Health used the ratio of Milliman’s estimate of ACA member cost-sharing savings to premium savings and applied this ratio to West Health’s premium savings estimate. To estimate the allocation of premium savings across employee and employer premiums, West Health weighted the EHBS percentage of premiums paid for commercial single plans (17%) and family plans (27%) by the MEPS distribution of enrollment in single plans (55.6%), resulting in a parameter estimate of 21.4% of premium savings attributable to employee premiums costs.
