The Inflation Reduction Act: It Could Actually Cause Prices To Rise Further In The Years Ahead
By Sally C. Pipes
September 8, 2022
Congressional Democrats are increasingly optimistic about this fall's midterm elections. They believe their recently enacted Inflation Reduction Act, especially its healthcare provisions, will win them plaudits from voters.
But they could be in for a rude awakening. Contrary to lawmakers' claims, the Inflation Reduction Act won't reduce inflation or bring down drug prices for most Americans. Many voters will ultimately feel duped -- and they could take their frustrations out at the ballot box for years to come.
Consider a recent analysis of the IRA by the Penn Wharton Business Model, the authors of which reported "low confidence that the legislation will have any impact on inflation." The Congressional Budget Office reached a similar conclusion, finding that the bill would have "a negligible effect" on inflation in the coming years.
So much for addressing voters' chief concern.
In fact, it's entirely possible that the legislation won't merely fail to reduce inflation -- it could actually cause prices to rise further in the years ahead.
The new law extends generous Obamacare subsidies to middle and even high-income households through 2025, at a supposed cost of $64 billion. In reality, the three-year cost may well be higher -- those same subsidies have cost about 50% more than anticipated this year alone, according to health economist Brian Blase.
If a future Congress ultimately makes the subsidies permanent -- as Democrats clearly hope to do -- the ten-year cost will balloon, pumping hundreds of billions more in deficit spending into the economy and driving up inflation.
Or consider the IRA's price controls on prescription drugs. Democrats promised consumers cheaper medicines -- but the vast majority of Americans won't notice any difference at the pharmacy counter.
Here's why. The price controls only apply to Medicare, so by definition, Americans with private insurance won't derive any savings from the price caps. Even seniors won't notice much change, since their out-of-pocket copays and coinsurance are set by insurance plans, not drug companies.
Plus, these price controls don't kick in until 2026, and will only impact 10 drugs. That figure will steadily increase to 20 by 2029.
Democrats are doing their best to downplay this inconvenient reality in the hopes of improving midterm prospects. It's a desperate, cynical strategy, and it's unlikely to work. Voters will find out soon enough that, with the IRA, they've been sold a bill of goods -- and an expensive one at that.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.