The Biden Administration Keeps Burying the Lede.
The best parts of the Inflation Reduction Act and student loan forgiveness aren’t the obvious ones.
The Biden administration’s got its mojo back just in time for the fall midterms. That new momentum is, in part, thanks to two key pieces of policy: the Inflation Reduction Act and Biden’s student loan forgiveness plan.
Though one is a major legislative accomplishment and the other a smart bureaucratic change, both have something in common: their most important parts weren’t their shiniest.
Let’s start with the Inflation Reduction Act’s much heralded price negotiation for prescription drugs. Prescription drug negotiation has grabbed many headlines — finally ending a long-held restriction on Medicare’s ability to advocate for its patients. Though, considering that negotiation doesn’t actually start until 2026 and that it only applies to, at most, 20 drugs, it’s the thinnest possible negotiation they could have gotten. And so, the most important aspect of the prescription drug reform isn’t drug negotiation at all. It’s something buried deep beneath the headlines: the Inflation Reduction Act limits the annual increase of drug prices to the rate of inflation for Medicare beneficiaries!
Over time, this component — not Medicare negotiation itself — is where the real savings for patients will accrue. Every year, pharmaceutical companies and their CEOs, whose profits are held in stocks, raise their prices to arbitrarily bump their projected earnings. Prices of half of the prescription drugs covered by Medicare increased faster than inflation in 2020. Price negotiation only benefits folks who are taking one of 20 drugs to which it applies. But limiting annual price increases across the board benefits far more people. The Biden administration buried the lede!
They did the same with student loan forgiveness announced last week. Ostensibly, this action is about forgiving up to $20,000 of debt for borrowers earning less than $125,000 annually. But like the Inflation Reduction Act, again, the most important aspect of the policy isn’t in the headlines.
The most revolutionary component of Biden’s student loan forgiveness is a rule change at the Department of Education with respect to the income-driven repayment plan. The rule both reduces the maximum discretionary income a borrower can be asked to pay, and alters the way that discretionary income is calculated. Rather than 150% of poverty, the new rule would calculate non discretionary income at 225% of poverty.
To understand the impact, consider a hypothetical borrower in Michigan who graduated with $25,000 in student loan debt.