A new letter from the Congressional Budget Office has further exposed the fiscal reality of the Inflation Reduction Act’s drug provisions. Policies Democrats in Congress promised would lower drug costs and reduce deficits are now driving a major increase in projected Medicare spending.
In its response to House committee chairs, CBO explained why it added roughly $700 billion to projected Medicare Part D spending from 2026 through 2035. The agency identified the law’s Part D redesign as the leading driver of sharply higher plan costs, alongside rising drug spending and weaker-than-expected savings from its price-control provisions.
The original score was not close. In 2022, CBO projected that the law’s drug-price negotiation and inflation-rebate provisions would reduce deficits by a combined $162 billion through 2031. After the $30 billion Part D redesign and $3 billion in implementation costs, CBO projected a net deficit reduction of $129 billion.
Now CBO says the provisions together will increase deficits over that same period. Negotiated prices have delivered less savings than expected. Inflation rebates have brought in less, and the Part D redesign has imposed costs far beyond the original estimate.
The flaw was in the statute itself. Congress capped seniors’ drug costs while shifting more of the bill to insurers and drugmakers. Helping sick seniors afford medicine is a worthy goal. But rewriting Part D did not suspend the basic principles of economics.
When patients face lower costs at the pharmacy counter, they use more medicine. That can improve adherence, but it also increases spending on sometimes costly drugs. CBO expected a modest increase in use. The agency now says the response was greater than anticipated.
The gap emerged in 2026 plan bids. CBO expected per-enrollee costs to rise about 5 percent. Plans projected a 35 percent increase. CBO says the redesign was the leading driver of those higher bids, though rising drug spending and changes in manufacturer rebates also contributed.
Seniors may not see the whole tab, but taxpayers do. So do people enrolled in stand-alone Part D plans, where the number of available plans has fallen sharply since the law’s enactment. CBO notes that 360 stand-alone plans are being offered in 2026, down from 766 in 2022.
The Biden administration saw the political problem coming and responded with a premium-stabilization demonstration that paid insurers billions to hold down premiums while the new Part D rules took effect. The three-year demonstration spent $9.8 billion and ends this year, an election year. It wasn’t a reform; it was a taxpayer-financed effort to conceal the consequences of a hastily passed, partisan plan, one poorly understood by its proponents.
The Trump administration is right to end it. Sending billions directly to insurers does not make Part D cheaper. It postpones the reckoning and leaves the defective benefit design untouched. But ending the subsidy is only the beginning. The Part D redesign is embedded in statute, so its structure limits what any administration can accomplish through ordinary program management. Lawmakers who wrote the problem into law must now confront it honestly.
The episode also undercuts the IRA’s broader fiscal claims. Drug savings were meant to help finance expanded green energy subsidies, which have also cost more than advertised. CBO and the Joint Committee on Taxation initially projected about $370 billion over 10 years; a recent analysis puts the figure between $936 billion and nearly $2 trillion. Here again the President has taken action to limit the burden on taxpayers by putting an end to government subsidies for EV sales and wind and solar projects — what could have been an ongoing stream of deficit spending the country can ill afford.
CBO’s letter should end the argument over whether the IRA drug provisions worked as advertised. They did not. Congress called it a savings plan. CBO’s new numbers show it was a spending plan all along. Congress should revisit the Part D redesign, reduce the taxpayer exposure it created, and stop pretending that shifting costs is savings.
No one wants seniors with serious illnesses to bear unlimited drug costs. But the IRA’s rushed, partisan remake of Medicare’s prescription drug program has merely moved costs around through increases in utilization management, skimpier formularies, and benefit designs with higher deductibles and increased reliance on coinsurance as opposed to flat copays. Even in Medicare Advantage plans that offer prescription drug coverage, the average deductible increased from $64 to $224 when the Part D redesign took effect, despite their ability to cross-subsidize their prescription drug coverage.
These adaptations by insurers shift costs back to seniors and may disadvantage the majority of Part D enrollees, since they lack sufficient drug spending to benefit from the redesign. Medicare needs a Part D benefit that protects beneficiaries, preserves plan choice, and does not require multibillion-dollar insurer subsidies to survive its first years.
Joe Grogan served as a domestic policy adviser to President Donald Trump from 2019 to 2020 and is the president and co-founder of Public Policy Solutions.
Editor's Note: Do you enjoy Townhall's conservative reporting that takes on the radical Left and woke media? Support our work so that we can continue to bring you the truth.
Join Townhall VIP and use promo code FIGHT to receive 60% off your membership.
Join the Conversation
VIP members get the ability to comment on articles.