After a conservative backlash, Republican senators negotiating an infrastructure bill have objected to an increase in funding and authority for the IRS. In lieu of additional revenue obtained from auditing taxpayers, how do lawmakers now propose to fund increased federal spending allegedly on roads and bridges? Through a budget gimmick.
In short, Congress now wants to repeal a rule that 1) hasn’t gone into effect and 2) likely won’t ever go into effect, so it can take the phony “savings” associated with repealing something that won’t happen anyway and use it to “pay for” real increases in spending.
You read that right. If you had any doubt that Washington has a problem with spending discipline, read below for further details.
What is Congress proposing?
Lawmakers are looking to repeal a rebate rule promulgated by the Trump administration two weeks after last November’s election. The rule (summary available here) would prohibit drug companies from paying rebates to pharmaceutical benefit managers (PBMs), unless the PBMs pass on those rebates at the point of service.
For instance, a drug company might give a PBM a $30 rebate on a $100 pharmaceutical. But rather than passing that rebate on to the end user, so the consumer pays $70 at the drug counter, most PBMs currently use the rebates to reduce plan premiums instead. The rule would require PBMs in Medicare Part D to pass these rebates directly on to seniors.
What budgetary effects would the rebate rule have?
The Congressional Budget Office and the Medicare actuary both believe it would raise federal spending. Requiring PBMs to pay rebates directly on to consumers by definition prohibits them from using those rebates to reduce premiums.
Without the rebate dollars flowing back into Part D plans, premiums could well rise. When the administration first issued the rebate rule in 2019, the Medicare actuary estimated that it would raise Part D premiums from $3.20 to $5.64 per month.
Medicare subsidizes roughly 75 percent of Part D plan premiums, meaning that if plan premiums rise, so will federal spending on prescription drug coverage. CBO said in 2019 that the
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