As Republican lawmakers try to identify ways to cut costs in public programs such as Medicaid, they’re finding it harder to achieve than perhaps originally envisaged. Acceptable options for Republicans include adding work requirements and rooting out waste, fraud and abuse. But to achieve planned cuts of $88 billion annually, they’ll need to go further. Politico reported last week that the White House and Republican lawmakers may attempt to meet Medicaid savings targets in the budget reconciliation bill by linking the prices the program pays for prescription drugs to international benchmarks.
The Medicaid program appears to be a very likely target of budget austerity measures, to help partially pay for an extension of the tax cuts enacted during President Trump’s first term in office. A House proposal discussed earlier this year is estimated to save $1.9 trillion dollars over ten years. Medicaid would form a large part of this.
Established in 1965, Medicaid is the joint state and federal health insurance program largely for people with low incomes in the United States. Currently, approximately 72 million people are enrolled. It’s hard to overstate the program’s importance. It covers more than 40% of all births in the country, and nearly two-thirds of nursing home stays. Around 27 million children receive Medicaid benefits. And in the 41 states that expanded the program as part of the Affordable Care Act, it also insures millions of Americans with incomes just above the federally defined poverty line. Medicaid is also very popular, according to a KFF poll released in March, with fewer than one-fifth of respondents saying they’d like to see cuts to the program.
The ACA expanded Medicaid eligibility in 2014 to include nearly all adults with incomes up to 138% of the federal poverty level. And since 2020, states that implemented Medicaid expansion receive a 90% federal match rate. Overall, for every dollar a state spends on Medicaid services, it now gets between $1 and $3 of federal support. Wealthier states are closer to $1; poorer states, $3.
Speaker of the House, Mike Johnson (R-La.), has more or less ruled out two policy proposals that would have made it easier to accomplish the House Energy and Commerce Committee’s $880 billion, ten-year savings target in cuts to Medicaid. These include a change to the portion of state Medicaid costs borne by the federal government, which is currently at 90% for states that elected to expand their eligible Medicaid population. And Johnson says it’s unlikely that lawmakers would implement per capita caps on Medicaid benefits for enrollees in expansion states.
But imposing work requirements remains an acceptable option for key GOP legislators. Indeed, work requirements for Medicaid resurfaced earlier this year as part of a broader legislative package of potential changes to the program. In this context, GOP lawmakers are pushing to require that able-bodied Medicaid recipients work in order to get or keep coverage.
However, the Congressional Budget Office has scored prior Medicaid work requirement proposals as merely saving approximately $100 billion over ten years, in part because a large majority of Medicaid beneficiaries already work. This would still leave Republicans far short of their budget goal. And so, they must come up with alternative savings.
Meanwhile, in the Senate, legislators from both sides of the aisle are collaborating to work on novel ways of achieving reductions in spending, specifically related to prescription drugs. Josh Hawley (R-Mo.) and Peter Welch (D-Vt.) have introduced legislation to lower prescription drug costs in Medicaid by prohibiting pharmaceutical companies from selling drugs in the U.S. at higher prices than an international average. Presumably, this international price referencing model would tie domestic prices paid for prescription drugs in the Medicaid program to an average level spent by a set of comparably wealthy countries.
Last week, I noted in a Forbes piece that the Trump administration may revisit a version of international price referencing called the most favored nation model which would peg what healthcare providers get paid for certain medications in Medicare to the lowest prices in peer countries. It’s unknown which prescription drugs could be targeted or whether such a model could be implemented through executive or legislative action.
During the first Trump administration, drug companies sued shortly after an executive order was issued on the most favored nation model and it was blocked in federal court. Nonetheless, capping what is paid or reimbursed to healthcare providers based on an international price referencing system remains an attractive idea for some politicians as it would probably result in lower net prices than have thus far been achieved in the Inflation Reduction Act price negotiations.
The CBO published a report last year in which a most favored nation model would in fact yield comparatively sizable cost savings for the Medicare program. This would likely also hold for Medicaid, though mandatory rebates already exist which provide substantial discounts for medications sold to the program.
Senator Welch noted that “in his first term, President Trump pursued a most-favored nation policy to level the playing field for American patients. I’m glad to partner with Senator Hawley on this bipartisan bill that offers the administration a template to work with Congress to make that goal a reality.”
The proposed legislation would impose fines on pharmaceutical companies that violate the rule, calculated and charged for each unit sold at an inflated price above the international average.
Notably, besides favoring work requirements, Hawley is opposed to kicking large numbers of people off the rolls or cutting benefits that would impact enrollees’ coverage. It appears he views international price referencing for prescription drugs in the Medicaid program as a way to spare draconian cutbacks while at the same time saving money for the government.
