Inflation Reduction Act Poised to Spike Medicare Premiums

Thanks to the Inflation Reduction Act, millions of Americans will see a substantial increase in Medicare premiums right before the 2024 presidential election. The White House is bracing for the blowback by ostensibly shifting taxpayer dollars to cover the significant spike in costs. But will these actions be enough to limit the fiscal and political hit before the electoral contest in November?

Inflation Reduction Act, Medicare, and Bidenomics

A key plank of President Joe Biden's signature legislation was to reduce the out-of-pocket costs of prescription drugs for Medicare beneficiaries. Insurance firms will be on the hook for what patients used to pay and, as a result, will bolster their drug plan premiums. It is set to take effect later next month and could triple by next year. With a tsunami of negative headlines potentially flooding Vice President Kamala Harris' campaign weeks before millions of people cast ballots, the current administration is planting sandbags, courtesy of the American people.

The White House is reportedly transferring billions of taxpayer dollars to private insurance companies to cushion the blow of the premium hike.

In July, the Centers for Medicare and Medicaid Services (CMS) launched a three-year "demonstration project" called "premium stabilization." The initiative essentially involves subsidizing these premiums and keeping them artificially low by having the subsidies go from $30 per recipient each month to nearly $143 in 2025.

Jackson Hammond, a senior policy analyst at Paragon Health Institute, described the federal government's efforts as "fake" and "costly." He outlined how the CMS is engaging in "a massive transfer of taxpayer resources to insurers to compensate them by tamping down increases in Part D premiums." He added in an August 5 paper:

"Fearing the premium increases that the IRA redesign will impose on Part D plans, CMS has now launched a new voluntary, nationwide demonstration program that is neither a demonstration nor voluntary. Unlike this massive subsidization scheme, demonstrations are supposed to be limited in nature and test alternative features of program design. As a result of the IRA changes, insurers that don’t participate are expected to either be uncompetitive from a price perspective or face significant losses – hardly a choice for insurers."

While Washington is attempting just to get to the finish line in November, the Congressional Budget Office (CBO), a non-partisan budget watchdog, warned that the Inflation Reduction Act’s adjustments to Medicare would exacerbate long-term federal deficit issues. The CBO explained that the higher federal subsidies and the premium stabilization attempts, as well as the greater drug utilization by beneficiaries, would apply pressure on the deficit. "On net, the deficit is estimated to rise by $2 billion in 2031 because of the redesign," the budget watchdog stated in a February 2023 report.

Republican lawmakers, including Sen. Bill Cassidy (R-LA), accuse the CMS' efforts of "using the federal treasury for political advantage." Cassidy told Politico: "This is a way for the executive branch to implement a policy which has very positive political ramifications for them, but with very sketchy legal standing.” A chorus of GOP officials in both chambers has requested the Government Accountability Office to investigate the program, asserting that "the integrity of the Medicare program and the taxpayer dollars that finance its benefits demand more than partisan aspirations to justify extra-statutory, eleventh-hour policy changes."

Healthcare Costs Spiraling Out of Control

Does anyone really believe health insurance declined by 0.6% in July? Well, the Bureau of Labor Statistics (BLS) attempted to convince observers of the latest Consumer Price Index (CPI) report.

US healthcare costs have spiraled out of control for the federal and state governments, insurance companies, and households. Last month, the CMS noted that national healthcare spending increased by 4.1% in 2022, surging to $4.5 trillion and averaging approximately $13,000 per person. While the coronavirus pandemic worsened the situation, ballooning costs have been a long-term trend over the last 50 years, recently hitting 17% of GDP. Indeed, there are many reasons, from an older population to a lack of competition in medical care services caused by egregious red tape.

But, while individuals will bear the heavy brunt of soaring out-of-pocket medical costs, Congress is also faced with a growing tab. In the first ten months of the fiscal year, the federal government has spent more than $1.4 trillion on Medicare and healthcare. About two-thirds of the budget is dedicated to mandatory spending, including Social Security, Medicare, and Medicaid. By 2034, the CBO forecasts, Social Security spending will be about $2.5 trillion. Medicare outlays will exceed $1.7 trillion, and Medicaid costs will top $1 trillion.

As the administration’s actions suggest, no politician will dare touch these sacred cows and will do anything to mask their actual costs to taxpayers to avoid damaging political fallout. That is until the bill comes due and the country is left without any choice.