February 2023

Big drug companies have been ripping us off for years and are now trying to protect their profits with scare tactics and lies. Big drug companies spent over $100 million trying to kill the Inflation Reduction Act, and now they are spending even more to undercut the new law. Their efforts would: (1) increase drug costs and Medicare premiums for seniors by thousands of dollars a year, (2) increase the deficit, and (3) increase drug companies’ profits at the the expense of seniors’ health and financial well-being. 

The Biden-Harris Administration and Congressional Democrats succeeded in enacting legislation that saves lives, lowers prescription drug costs for seniors, and puts thousands of dollars per year back into the pockets of Americans — the greatest health care achievement since the passage of the Affordable Care Act. 

The Inflation Reduction Act:

1. Caps seniors’ monthly insulin costs at $35 per month.
2. Provides free recommended vaccinations to seniors.
3. Caps seniors’ out-of-pocket drug costs at $2,000 per year starting in 2025. 
4. Prevents price gouging by requiring drug companies to pay rebates to Medicare if they increase their prices faster than inflation.
5. Gives Medicare the power to negotiate lower drug prices for millions of Americans. 
6. Reduces the deficit by billions of dollars.

The drug industry is already spending heavily on lobbying to gut the law. Their main focus is undermining negotiations. They want to postpone negotiations for years over the price of some of the most expensive drugs. Currently, small molecule drugs (generally, retail prescription drugs sold in pill form and covered under Part D) are eligible for price negotiation once they have been on the market for 9 years; the drug industry wants to lengthen that period to 13 years to be consistent with biologic drugs, which are more complex to manufacture and are the biggest driver of rising drug spending. 

• If big drug companies and policymakers desire an even playing field among all drug types, all excessively priced drugs, including biologics, should be aligned with the 9 year negotiation eligibility rule currently in place for traditional small molecule drugs.

If big drug companies get their way, drug costs and premiums will increase for seniors and people with disabilities covered by Medicare. Delaying the eligibility period for Medicare negotiation would reduce the number of drugs eligible for negotiation and prevent some of the highest prices from being lowered. For example, Bristol-Myers Squibb’s atrial fibrillation drug, Eliquis, would not be eligible for lower drug price applicability in 2026 if the drug industry succeeded in rolling back the Inflation Reduction Act. More than 2.6 million seniors would face higher out-of-pocket costs for the drug for an additional four years. Watering down the new law would also lead to higher Medicare premiums.

Seniors reject drug companies’ argument that negotiation threatens innovation. AARP’s 2023 survey of their 38 million members re-affirms that Republican and Democratic voters reject the drug industry’s argument that lower prices will kill innovation. 

• Only 23% think it will have a negative impact on innovation. 
• 72% believe high drug prices are a result of price gouging by the drug industry.

The drug industry claims that Medicare negotiation will hurt innovation are false. CBO estimates that over the next 30 years, FDA will approve about 1,285 drugs, about 15 fewer drugs than would come to market without the negotiation program. Furthermore, experts agree that the U.S. market will always be the most generous payer and, thus, will continue to provide huge incentives and rewards for true innovation.

The Medicare Drug Price Negotiation Program is designed to reward innovation. The new law gives drug companies at least nine years to recoup their research and development investments and earn profits before becoming eligible for Medicare negotiation. Recent research shows that cancer drugs recover their research and development costs within five years, allowing ample time for drug makers to earn high returns on valuable therapies. Moreover, the argument that drug makers need to set prices high to cover research and development costs is not supported by the evidence  – research shows no correlation between a drug’s price and its research and development costs. For decades, big drug companies have made massive profits by introducing “me too” drugs that don’t provide significant new clinical benefits. Over 60% of the drugs listed on the World Health Organization’s list of essential medicines are me-too drugs. Congress designed the Medicare Drug Price Negotiation program to reward and incentivize true innovation by requiring CMS to consider “unmet medical needs” and a drug’s comparative effectiveness and benefits over other similar drugs, encouraging drug manufacturers to invest bringing truly innovative therapies to market. 

Without Medicare savings from negotiation, Congress couldn’t afford the cost of the bill’s other drug benefits. The Medicare Drug Price Negotiation and Prescription Drug Inflation Rebate Programs reduce some of drug companies’ outrageous profits, and use those savings to deliver better benefits to seniors like lower premiums, a $2,000 out-of-pocket cap, a $35 cap on insulin costs, and free recommended vaccines. Weakening negotiation would undermine these benefits and add to the deficit. 

The Reality is Spending for Medicare Advantage is Going Up, Medicare Advantage Profits are Through the Roof, and Evidence of Fraud By Insurance Companies is Widespread

The insurance industry and their Republican supporters in Congress are trying to scare seniors into believing the Biden administration is cutting Medicare. In fact, the Biden administration is proposing to increase spending on Medicare Advantage by $4 billion. The Biden administration is also standing up to long term insurance company fraud and abuse in Medicare Advantage. Their efforts will improve the quality of Medicare Advantage plans – particularly for people struggling to make ends meet. It will also strengthen program integrity, and save the Medicare Trust Fund over $15 billion. 

Big Insurers and the GOP Falsely Claim That the Administration Is Cutting Medicare Advantage, but It’s an Over $4 Billion Increase. On February 1, the Centers for Medicare and Medicaid Services (CMS) proposed a 1.03% increase in its 2024 Advance Notice with Proposed Payment Updates for Medicare Advantage. CMS’s proposed payment increase translates to around $4 billion additional dollars for Medicare Advantage in 2024. This follows two years of even larger payment increases of 8.5% for 2023 and 4.08% for 2022. Medicare Advantage payments to insurers translate to the highest gross margins of any insurance product. Politifact rated a tweet from Senator Tom Cotton that said President Biden is proposing cuts to Medicare Advantage as “false.” The proposed changes to Medicare Advantage are not cuts but instead, aim to solidify the program’s integrity and payment accuracy. 

Republicans Are On The Record Promising To Cut Medicare. Republicans have been working for years to cut Medicare. Senator Rick Scott has proposed “sunsetting” all federal legislation, including Medicare, every five years and subjecting it to congressional reapproval. Senator Ron Johnson would go even further and subject Medicare to the annual appropriations process. Dozens of House Republicans have proposed using the upcoming debt limit debate to force cuts to Medicare and Social Security and just last year the influential Republican Study Committee released a budget that included radical changes to Medicare and Social Security, including raising the eligibility age. 

Republicans Care More About The Profits Of The Insurance Industry Than They Care About America’s Seniors. Some of the same Republicans who have proposed cuts to Medicare are now rushing to defend the insurance industry’s Medicare Advantage profits. Republican Study Committee Chair Rep. Kevin Hern has repeatedly called the administration’s proposed Medicare Advantage payment plan a “cut” that will “slash” Medicare and the “first step” to forcing all Americans into a Medicare for All plan. One of Hern’s top financial backers is the insurance industry. Senators Tom Cotton and Steve Daines have also toed the insurance industry line by attacking the Biden administration’s plan to strengthen Medicare advantage and improve the quality of the program. 

The Administration’s Stewardship Of The Medicare Program Will Save The Medicare Trust Fund Over $15 Billion. Auditing Medicare Advantage plans and recouping overpayments is a commonsense way to preserve Medicare Trust Fund dollars for seniors who rely on Medicare, not greedy corporations. The Biden administration’s policies protect Medicare solvency. 

Medicare Advantage Drives Massive Insurance Industry Profits. A 2020 report from Fierce Healthcare found that the top health insurers raked in $35.7 billion in profits over the course of 2019 due to the growth of Medicare Advantage – six out of seven major insurers saw “notable growth” in their Medicare Advantage enrollment. 

• Humana Made Billions In Profits In 2022 Driven By Medicare Advantage: In the third quarter of 2022, Humana reported nearly $1.2 billion “largely due to growth in its Medicare Advantage health plans and lower than expected medical expenses.” Medicare Advantage plans form a large share of Humana’s business, and the company projects it will add another 625,000 members to its Medicare Advantage plan in 2023, 13.7% higher compared with 2022. 
• Medicare Advantage Plans Are The Most Profitable Part Of The Health Insurance Business: A 2023 Kaiser Family Foundation study found that of the four private health insurance markets, the Medicare Advantage market has the highest gross margins, averaging $1,730 per enrollee per year in 2021.  Average gross margins — the average amount by which premium income exceeds yearly claims costs for each covered person — are considered a critical benchmark for insurer financial performance. The average gross margin for the Medicare Advantage market was about double the gross margins of the other three markets, pegged at $689 per covered person in the group market, $745 per covered person for the individual market, and $768 in Medicaid Managed Care.

Most Large Insurers In The Medicare Advantage Program Have Been Accused Of Padding Their Profits With Fraud. A 2022 New York Times review of dozens of fraud lawsuits, inspector general audits, and investigations by watchdogs showed how major health insurers have exploited Medicare Advantage to inflate their profits by billions of dollars. The government pays Medicare Advantage insurers a set amount for each person who enrolls, with higher rates for sicker patients. The insurers, among the largest and most prosperous American companies, have developed elaborate systems to make their patients appear as sick as possible, often without providing additional treatment. Eight of the 10 biggest Medicare Advantage insurers — representing more than two-thirds of the market — have submitted inflated bills, according to federal audits. And four of the five largest players — UnitedHealth, Humana, Elevance, and Kaiser — have faced federal lawsuits alleging that efforts to overdiagnose their customers crossed the line into fraud. The fifth company, CVS Health, which owns Aetna, told investors its practices were being investigated by the Department of Justice.

• Insurers May Use Medicare Advantage To Pad Their Bottom Line By Disguising Profits As Costs. A 2022 report from the Brookings Institution indicated the five major insurers providing Medicare Advantage plans – UnitedHealthcare, Humana, Aetna, Kaiser Permanente, and Elevance Health (formerly Anthem) – are padding their bottom lines by disguising profits as costs. Insurers are able to do this because profits accrued through related businesses are not regulated by medical loss ratio (MLR) requirements. In certain cases, spending on related businesses can reach more than 70%, the report noted. The top 5 companies have related businesses, including pharmacy benefit managers (PBMs), post-acute providers, hospitals, and physician practices. “In each case, the prices charged to the Medicare Advantage plan can have a material effect on where profits and costs appear,” the report said. “This creates potential to move earnings outside the reach of regulations.”
• Senate Report Finds Insurers Engage In Deceptive Marketing Practices. A November 2022 report by Senate Finance Committee Chair Ron Wyden found insurers used deceptive marketing practices to enroll seniors and seniors’ complaints to CMS doubled between 2020 and 2021. 

The Biden Administration Is Reining In Insurance Company Excess And Fraud And Protecting Medicare From Corporate Profiteering. CMS should be applauded for protecting the Medicare Trust Fund from being raided by greedy corporations. Medicare Advantage has been a cash cow for big insurance companies, and CMS’s stewardship of Medicare Advantage reflects a commitment to good governance and improving the quality of the program for seniors who choose Medicare Advantage. In finalizing new changes to the Medicare Advantage (MA) Risk Adjustment Data Validation (RADV) program and through the annual payment update, CMS is restarting standard program integrity activities like those they conduct with other Medicare and Medicaid programs, holding insurers accountable and strengthening the integrity of the Medicare Advantage program. Medicare Advantage plans now administer nearly half of the Medicare program and receive more than $420 billion in payments per year. No risk adjustment overpayments have been collected from Medicare Advantage organizations since 2007, despite audits that show seniors’ medical records do not consistently support the diagnosis reported by their insurer. 

Overpayments To Medicare Advantage Plans Lead To Higher Premiums For Traditional Medicare And Disproportionately Hurt Rural Seniors. When Medicare Advantage sponsors are overpaid, premiums for seniors with traditional Medicare increase. In effect, fee-for-service Medicare enrollees subsidize Medicare Advantage enrollees. Americans residing in rural areas are less likely to have access to Medicare Advantage, so are disproportionately hurt by overpayments to these plans.

Medicare Advantage Doesn’t Serve Black And Latino Populations Well. People who are on Medicare Advantage are disproportionately Black and Latino. However, research shows that compared to white seniors, insurers offer plans with lower quality ratings to racial and ethnic minority groups, who enroll in these low-rated plans more frequently than white seniors. Even the top-rated plans perform worse for minority seniors. And, even irrespective of plan ratings, Medicare Advantage doesn’t always serve seniors of color better. A December 2022 study found Black seniors enrolled in Medicare Advantage have higher rates of avoidable hospital admissions than white seniors. Furthermore, while Medicare Advantage plans provide additional benefits, a January 2023 GAO report highlights that plans refuse to report the extent to which seniors actually use the supplemental benefits provided by Medicare Advantage plans. The Biden administration is improving Medicare Advantage for seniors of color by cracking down on deceptive marketing practices and strengthening access to behavioral health services by reducing wait times and improving care coordination and network adequacy. These improvements to Medicare Advantage for underserved populations are just one example of the administration’s commitment to advancing health equity stemming from an Executive Order President Biden issued on his first day in office and Health and Human Services’ subsequent Equity Action Plan to institutionalize and sustain a focus on equity over time.