After a conservative backlash, Republican senators negotiating an infrastructure bill have objected to an increase in funding and authority for the IRS. In lieu of additional revenue obtained from auditing taxpayers, how do lawmakers now propose to fund increased federal spending allegedly on roads and bridges? Through a budget gimmick.
In short, Congress now wants to repeal a rule that 1) hasn’t gone into effect and 2) likely won’t ever go into effect, so it can take the phony “savings” associated with repealing something that won’t happen anyway and use it to “pay for” real increases in spending.
You read that right. If you had any doubt that Washington has a problem with spending discipline, read below for further details.
What is Congress proposing?
Lawmakers are looking to repeal a rebate rule promulgated by the Trump administration two weeks after last November’s election. The rule (summary available here) would prohibit drug companies from paying rebates to pharmaceutical benefit managers (PBMs), unless the PBMs pass on those rebates at the point of service.
For instance, a drug company might give a PBM a $30 rebate on a $100 pharmaceutical. But rather than passing that rebate on to the end user, so the consumer pays $70 at the drug counter, most PBMs currently use the rebates to reduce plan premiums instead. The rule would require PBMs in Medicare Part D to pass these rebates directly on to seniors.
What budgetary effects would the rebate rule have?
The Congressional Budget Office and the Medicare actuary both believe it would raise federal spending. Requiring PBMs to pay rebates directly on to consumers by definition prohibits them from using those rebates to reduce premiums.
Without the rebate dollars flowing back into Part D plans, premiums could well rise. When the administration first issued the rebate rule in 2019, the Medicare actuary estimated that it would raise Part D premiums from $3.20 to $5.64 per month.
Medicare subsidizes roughly 75 percent of Part D plan premiums, meaning that if plan premiums rise, so will federal spending on prescription drug coverage. CBO said in 2019 that the rebate rule would increase federal spending by $177 billion over a decade; Sen. Rob Portman, R-Ohio, claimed this week that CBO now believes the rule will increase spending by $186 billion over the next ten years.
Will the rebate rule go into effect?
In its current form, almost certainly not, as it faces all manner of challenges:
- Legal: As I noted when it came out last year, the Trump administration claimed it had withdrawn the rebate rule in summer 2019, only to issue it in final form after the November 2020 elections—a likely procedural violation that jeopardized the rule’s legality. A trade group for PBMs had challenged the rule in court, and a judge’s ruling, coupled with a request from the Biden administration, already delayed its implementation until January 1, 2023.
- Political: The current effective date of January 2023 means that, if, as expected, the rule will raise premiums, seniors will get notices of higher Part D costs weeks before the November 2022 elections. No administration in its right mind would propose premium increases for seniors weeks before an election where control of both houses of Congress is at stake; in fact, the Trump administration proposed a federal insurer bailout of questionable legality when it first suggested the rebate rule in 2019, to avoid any potential blowback from higher premiums.
- Logistical: Democrats in Congress and the administration have already discussed repealing the rebate rule to pay for their “infrastructure” (read: welfare expansion) legislation.
If the rule won’t go into effect, why doesn’t the Biden administration just withdraw the rule outright?
Because if the Biden administration withdraws the rule, Congress can’t spend the “savings” generated by repealing it via legislation.
So this is just a kabuki dance for Congress to obtain $177 billion in phony “savings” by repealing something that won’t happen anyway, and turn around and spend the money?
Does this kind of fiscal chicanery happen often?
Too often, unfortunately. Three years ago, I explained how then-House Speaker Paul Ryan, R-Wisconsin, wanted to get CBO to alter its budgetary baseline, so Congress could turn around and spend phony “savings” to fund an Obamacare bailout. The second part of Ryan’s plan didn’t work—the bailout got held up over funding for abortion coverage—but he did succeed in getting CBO to increase their budgetary baseline in ways that violated the federal Gramm-Rudman-Hollings Act.
Why did the Trump administration leave a rule in place that gave the incoming Biden regime $177 billion in “savings” to spend?
Good question. I have talked with former staff who fought the rebate rule in the administration’s final days, knowing the Biden administration would use the costs associated with the rule and the phony “savings” associated with repealing it, as a slush fund. Unfortunately, those efforts came up short.
Trump recently issued a statement saying that Republicans negotiating the bipartisan infrastructure bill are “just being played by the Radical Left Democrats.” Ironically enough, if repeal of the rebate rule ends up getting the bill over the finish line, those “Radical Left Democrats” may end up having Donald Trump to thank.