Governments, particularly communist ones, are experts at drafting misleading names to hide their true intentions. For example, there is nothing “democratic” about North Korea, which calls itself the “Democratic People’s Republic of Korea.”
Closer to home, lawmakers try to pull a similar trick by obfuscating policy with cutesy or popular sounding names for legislation. Everyone loves an IRA (individual retirement account) as a retirement fund. So why not name a bill the “Inflation Reduction Act” and use the acronym to promote it? Everyone hates inflation as much as they love an IRA.
However, the Biden Administration passed their version of an IRA, with Vice President Kamala Harris casting the deciding vote in the Senate, which, despite the title, did nothing to reduce inflation, and buried a provision in the bill which imposed price controls on prescription drugs in Medicare that is now taking effect. Patients should expect shortages and scarcity, and potentially less investment in new pharmaceutical advances, because of these policies.
One of the factors driving inflation in recent years, both before and after COVID, is the booming cost of health care. “Health spending in the U.S. increased by 4.1% in 2022 to $4.5 trillion or $13,493 per capita,” the American Medical Association writes. “This growth rate is comparable to pre-pandemic rates (4.1% in 2019).” That rate is double the 2% inflation target of the Federal Reserve.
Any bill that tries to control inflation would need to recognize issues in this sector. Biden’s IRA, however, seems intended to do the exact opposite. It launched new price controls within Medicare for selected prescription medicines. Price controls are bad enough. They never really work, as anyone who lived through the stagflation of the 1970s can remember.
Additionally, these controls are massive tax measures targeted at pharmaceutical companies. Drug companies must either accept the government-set price, or else pay the IRS an excise tax equal to 95 percent of the gross revenue of the same medicine. That means medicine prescribed to Medicare patients, patients with private insurance, and patients with some other payment mechanism.
This becomes inflationary because, as with any excise tax, the additional costs incurred by manufacturers will simply be passed along to consumers in the form of higher prices. The federal gas tax, for example, is paid by oil companies, but it’s passed along to drivers in higher pump prices. With Biden’s 95 percent drug excise tax, it will be seniors and other customers paying more at the pharmacy counter - making patients choose between their prescription drugs and other household expenses.
It is tempting to assume that the tax will never be paid. Maybe companies will simply swallow this bitter pill and sell drugs at the set government rate. But that isn’t what the experts in Washington expect. The IRS predicts that as many as 50 companies will pay the tax, and that they will spend some 1,380 hours a year to file the paperwork involved. Raising taxes on the elderly is not an effective way to fight inflation, and neither is increasing the red tape that American companies must wade through.
At the end of the day, even if these policies somehow worked, the government price controls would only serve to reduce innovation in the pharmaceutical sector and potentially deprive U.S. patients of emerging technologies and therapies.
The United States has been the worldwide leader in medical innovation for decades. That is because drug companies can earn profits on their products, so they are encouraged to experiment and develop new drugs. In other countries, such as Canada, they simply import the wonder drugs which American companies develop. The long-term effect of price controls would be fewer and less effective drugs for everyone, everywhere. And this IRA tax could mean a doubling of the price of many important treatments.
The first segment of the IRA called for price controls/taxes on 10 drugs. But the Biden administration aims to make as many as 60 medicines part of this scheme. The program is not only inflating prices, but also the government’s power and influence as well.
And yet, the Democratic Convention highlighted Vice President Kamala Harris’ push for price controls on groceries under the auspices of price gouging. A significant number of economists - both left and right politically - pointed out that price controls on food led to long food lines, shortages, and a black market in the old Soviet Union. That may be an extreme example, but it does show that price controls do not work.
Inflation is a huge issue in the 2024 presidential election. People are sick of it and will be voting with their wallets. When they do, they should keep in mind exactly who is responsible for Joe Biden’s IRA. Even before November, lawmakers should roll back this law, before inflation gets worse.
Peter Mihalick is the former legislative director and counsel to former Reps. Barbara Comstock (R-VA) and Rodney Blum (R-IA).
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