Ad Targeting Manchin and AARP Mischaracterizes Medicare Drug-Price Negotiations

Sen. Joe Manchin and AARP “support government price-setting schemes” to divert money from Medicare to “unrelated government programs or pad big insurers’ profits.”

Ad by American Commitment, July 10

A snappy political advertisement from the conservative advocacy group American Commitment bluntly charges Sen. Joe Manchin (D-W.Va.) with supporting a legislative plan that would drain “billions in funds” from Medicare.

Specifically, the ad claims that Manchin and AARP, the well-known advocacy group for people 50 and older, “support government price-setting schemes that’ll give liberal politicians billions in funds meant for Medicare to spend on unrelated government programs or pad big insurers’ profits.” Here, “price-setting” is a reference to a policy proposal that its backers say would give Medicare the ability to rein in the prices it pays for some prescription drugs so they are more in line with prices in other industrialized countries.

American Commitment didn’t respond directly to KHN’s request for comment, but its president, Phil Kerpen, took to Twitter to react to our email inquiry. Kerpen tweeted on July 14 that “CBO shows Manchin/Schumer drug price controls raid Medicare for $287 billion, most of which is expected to be sent to insurance companies as supersized Obamacare subsidies.”

This is a reference to the Congressional Budget Office’s July 6 cost estimate of the prescription drug policies in an economic package — a type of legislation known as a reconciliation bill — that Senate Democrats, led by Majority Leader Chuck Schumer, hope to bring to the floor in the coming weeks. The CBO found those policies would save $287.6 billion over 10 years as a result of Medicare’s reduced spending on drugs. More on this later.

Both Manchin and AARP dismissed the ad’s message.

“This ad funded by Big Pharma is blatantly lying about Sen. Manchin’s record,” said Sam Runyon, Manchin’s communications director. “West Virginia seniors know Sen. Manchin has worked tirelessly to protect Medicare and reduce prescription drug costs.”

American Commitment received $505,000 from PhRMA, the drug industry’s trade group, in the 2020 election cycle, according to OpenSecrets.

In the days after the ad began airing, Manchin announced he would support only a slimmed-down version of the reconciliation bill, although his support for Medicare drug-price negotiations has remained steady.

Bill Sweeney, AARP’s senior vice president of government affairs, said the ad is representative of “the false attacks” that opponents of the proposal are using. “So I don’t think anything can be further [from] the truth,” he said, referring to the ad’s assertion that the Medicare program will be cut to pay for something else.

This ad is marked by charged language and opinions, and it raises the question of whether giving Medicare the power to regulate drug prices would be the price-setting scheme that American Commitment makes it out to be.

What Are Medicare Drug-Price Negotiations?

The ad claims that Manchin and AARP “support government price-setting schemes.” And it’s true that Manchin and AARP continue to favor Medicare drug-price negotiations.

So what does that mean?

Medicare is currently prohibited from bargaining directly with pharmaceutical companies over how much it pays for certain prescription medications, so that power would be new. Supporters of the proposal say doing so would lead to significant savings for Medicare because it pays much higher prices than the rest of the world. Critics of the proposal, such as Kerpen, call the practice “price setting.”

The reconciliation bill’s Medicare drug provisions would allow the program to negotiate drug prices for a limited set of drugs — 10 initially and another 10 in later years — and would cap drug price inflation. The legislation would also set a $2,000 limit on annual out-of-pocket drug costs for Medicare beneficiaries. Companies that opt out will face an excise tax on the previous year’s profits.

Joseph Antos, a senior fellow and health care scholar at the American Enterprise Institute, said an argument can be made that even though the drugmakers and the government would hold discussions about setting lower prices for certain drugs, the program would compel drugmakers to comply or face tax penalties.

“The manufacturers will have no leverage at all — this is a law that gives [the Centers for Medicare & Medicaid Services] the authority to set the price,” Antos said. “There will be discussions, and, of course, it’s polite to call it negotiation,” he added, but ultimately the government will make the decision.

Medicare Savings or Cuts? Common Washington Spin

Historically, both Republicans and Democrats, as well as the advocacy groups aligned with them, have framed a reduction in Medicare spending as a cut to the program when trying to gain traction with voters.

In this case, though, the drug pricing experts we consulted unanimously agreed that, from a budgetary standpoint, the almost $288 billion estimate from the CBO represents savings for Medicare, rather than funds that would be taken away from the program, as the ad alleges.

“What’s happening here isn’t an elimination of a Medicare service or benefit — we’re talking about paying lower prices for the very same drugs we pay the highest prices in the world for now,” said Rachel Sachs, a law professor and drug pricing expert at Washington University in St. Louis.

“So, I’d say that’s fairly misleading,” Sachs said.

Indeed, if Medicare pays less for drugs, that could have a beneficial trickle-down effect, said Matthew Fiedler, a senior fellow with the University of Southern California-Brookings Schaeffer Initiative for Health Policy. That’s because, under this scenario, Medicare premiums and cost sharing would also be reduced, saving beneficiaries money. The actual savings would probably vary, though.

Another common argument from the pharmaceutical industry is that if their revenue goes down, fewer drugs could be developed in the future. The CBO estimated that the drug-price negotiation provision would hinder about 15 new drug approvals over 30 years. Under current law, about 1,300 drugs would typically be approved during that same period, according to the CBO.

“There’s a lot of disagreement about how large those effects will be and whether we are talking about high- or low-value drugs,” Fiedler wrote in an email referring to the reduced number of drug approvals. “There is a potential trade-off here between lower costs for beneficiaries and fewer new drugs down the road, albeit nothing resembling a clear-cut case that Medicare beneficiaries will be worse off overall.”

It’s also important to remember that these drug price negotiations would target only a small subset of drugs — 20, at most — although the legislation does target the most expensive single-source drugs, which could include some cancer drugs, blood thinners, and rheumatoid arthritis medication. Still, drug companies would be free to profit from the sale of their other drugs.

So, overall, the experts said the ad’s contention that drug price negotiations would negatively affect seniors is inaccurate.

Would Insurers Profit if ACA Subsidies Were Extended?

The ad also alleges that the billions of Medicare dollars saved would be spent by liberal politicians on “unrelated government programs” or to “pad big insurers’ profits.”

Senate Democrats have said that the nearly $288 billion in estimated savings to Medicare would be used to offset the cost of other programs.

There’s no question that the $288 billion in savings would give “Congress the ability to spend on something else in the same bill,” Antos said. “But, again, this is not a revelation — this is how all legislation works. The ad makes it sound like it’s out of the ordinary, but it’s actually completely usual.”

The Democrats’ earlier plan for the reconciliation bill included provisions related to climate change, energy, and tax policy. However, momentum is now behind the approach supported by Manchin, which includes only a two-year extension of the enhanced premium subsidies for consumers who buy insurance plans on the Affordable Care Act marketplaces. The American Rescue Plan Act, which became law in March 2021, first increased those subsidies and made qualifying for assistance easier, but that help runs out at the end of this year. If the subsidies expire, millions of people will have to start paying much higher insurance premiums or could lose their coverage.

This point brings us to the ad’s claim about padding insurers’ profits — which Kerpen linked to extending the ACA subsidies. That’s not true, according to the experts.

“Insurers might capture a little bit, since they would earn their ordinary profit margins on new enrollment,” Fiedler said. But “those effects will be small relative to the amounts of money involved.”

The ACA also includes a provision that stops insurers from profiting too much from marketplace plan premiums, said Linda Blumberg, a fellow in the Health Policy Center at the Urban Institute. And increases in enrollment would also come with a boost in medical claims.

Both Blumberg and Fiedler said framing the proposal to extend the subsidies as padding insurers’ profits is misleading.

Our Ruling

American Commitment’s ad claims that Manchin and AARP support “price-setting schemes” that will divert funds meant for Medicare to “spend on unrelated government programs or pad big insurers’ profits.”

As noted by the experts we consulted, the ad is not accurate. The Medicare drug pricing plan results in savings, not the diversion of funds from the Medicare program. The ad also distorts the fact that those funds would be used to support other initiatives — in this case, the ACA subsidies. It’s not an underhanded conspiracy but a regular part of the reconciliation process. Additionally, if the plan comes to fruition and ACA subsidies are extended, insurance companies are not likely to reap big profits if it comes to fruition. We rate it False.

Sources

American Commitment political ad, “Manchin Attack Ad Airing in West Virginia,” July 2022

Brookings Institution, “What Is Reconciliation in Congress?” Feb. 5, 2021

Congressional Budget Office, “Estimated Budgetary Effects of Subtitle I of Reconciliation Recommendations for Prescription Drug Legislation,” July 8, 2022

Email interview with Rachel Sachs, law professor at Washington University in St. Louis, July 13 and 18, 2022

Email interview with Linda Blumberg, a fellow in the Health Policy Center at the Urban Institute, July 14, 2022

Email interview with Juliette Cubanski, deputy director of the program on Medicare policy at KFF, July 21, 2022

Email interview with Stacie Dusetzina, associate professor of health policy at Vanderbilt University, July 14, 2022

Email interview with Matthew Fiedler, senior fellow with the University of Southern California-Brookings Schaeffer Initiative for Health Policy, July 13 and 19, 2022

Email interview with Sam Runyon, Sen. Joe Manchin’s communications director, July 14, 2022

KHN, “Seeking to Kick-Start Biden’s Agenda, Schumer Unveils a Bill for Medicare Drug Price Negotiations,” July 7, 2022

KHN-PolitiFact, “An Ad’s Charge That Drug Price Haggling Would ‘Swipe $500 Billion From Medicare’ Is Incorrect,” Sept. 28, 2021

KHN-PolitiFact, “Democratic Super PAC Uses Familiar Political Play to Hit Trump on Medicare,” May 29, 2020

KFF, “Explaining Health Care Reform: Medical Loss Ratio (MLR),” Feb. 29, 2012

KFF, “Simulating the Impact of the Drug Price Negotiation Proposal in the Build Back Better Act,” Jan. 27, 2022

OpenSecrets, “Pharma Lobby Poured Millions Into ‘Dark Money’ Groups Influencing 2020 Election,” Dec. 8, 2020

Phone interview with Joseph Antos, senior health care scholar at the American Enterprise Institute, July 13 and 19, 2022

Senate Finance Committee, “Subtitle I — Prescription Drug Pricing Reform,” June 19, 2022

Tweet from Phil Kerpen, president of American Commitment, July 14, 2022

Video interview with Bill Sweeney, senior vice president of government affairs for AARP, July 14, 2022

The Washington Post, “Manchin Says He Won’t Support New Climate Spending or Tax Hikes on Wealthy,” July 14, 2022

This story was produced by KHN (Kaiser Health News), a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.