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80 Percent of Projected IRA Discounts Were Achieved Through Price Negotiation Instead of Price Controls

2AW ParagonPic IRA Price Controls 01
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Theo Merkel

Former Director Private Health Reform Initiative at Paragon Health Institute

Theo Merkel formerly served as the Director of the Private Health Reform Initiative and a Senior Research Fellow for the Paragon Institute and a Senior Fellow at the Manhattan Institute.

Drew Gonshorowski

Senior Research Fellow at Paragon Health Institute

Drew Gonshorowski is a Senior Research Fellow at Paragon Health Institute. He brings a decade of experience conducting quantitative research and building models examining health policy and entitlement programs.

This week’s Paragon Pic, adapted from analysis in a recent Health Affairs report, highlights how well private plans were negotiating without needless price controls. Theo Merkel presented this information in before the Senate Committee on Finance as part of his testimony on the Inflation Reduction Act.

From Merkel’s Testimony:

“So far, the IRA drug provisions provide a perfect illustration of unintended consequences. According to estimates, as shown in the figure below, 80 percent of the discounts announced last month by the government price setters had already been achieved by private plans negotiating without price controls. This likely overstates the impact, given that these estimates are for the level of savings that would have occurred in 2023, but the new prices do not kick in until 2026, when the privately negotiated discounts would have certainly been larger.”

For more reading on the topic, Paragon Senior Policy Analyst Jackson Hammond goes deeper on why these price controls are bad policy.

2AW ParagonPic IRA Price Controls 01

This week’s Paragon Pic, adapted from analysis in a recent Health Affairs report, highlights how well private plans were negotiating without needless price controls. Theo Merkel presented this information in before the Senate Committee on Finance as part of his testimony on the Inflation Reduction Act.

From Merkel’s Testimony:

“So far, the IRA drug provisions provide a perfect illustration of unintended consequences. According to estimates, as shown in the figure below, 80 percent of the discounts announced last month by the government price setters had already been achieved by private plans negotiating without price controls. This likely overstates the impact, given that these estimates are for the level of savings that would have occurred in 2023, but the new prices do not kick in until 2026, when the privately negotiated discounts would have certainly been larger.”

For more reading on the topic, Paragon Senior Policy Analyst Jackson Hammond goes deeper on why these price controls are bad policy.

Related Research

Theo Merkel

Former Director Private Health Reform Initiative at Paragon Health Institute

Theo Merkel formerly served as the Director of the Private Health Reform Initiative and a Senior Research Fellow for the Paragon Institute and a Senior Fellow at the Manhattan Institute.

Drew Gonshorowski

Senior Research Fellow at Paragon Health Institute

Drew Gonshorowski is a Senior Research Fellow at Paragon Health Institute. He brings a decade of experience conducting quantitative research and building models examining health policy and entitlement programs.