The Medicare Paradox, Part 3: Strategic Trade Doesn’t Have to be a Zero-Sum Game
Over the past 2 weeks, I’ve examined the growing friction between the Section 232 pharmaceutical tariff investigations and the Medicare drug pricing reforms authorized by the Inflation Reduction Act (IRA). These 2 policy agendas—industrial resilience and drug affordability—are on a collision course.
The effects of policy are rarely felt evenly. As pharmaceutical tariffs move from investigation toward potential implementation, the resulting disruption will cascade across the health care system in both expected and unexpected ways.
For Medicare Beneficiaries
The 64 million Americans enrolled in Medicare have the most at stake in this policy collision. Seniors typically take more medications than younger populations and often live on fixed incomes, making them highly sensitive to drug price increases. The ideal solution from beneficiaries' perspective would maintain or enhance the affordability gains from the IRA while improving supply chain resilience. This would likely require:
- Transparent exemption processes with patient advocacy input;
- Continued implementation of the Medicare Drug Price Negotiation Program;
- Protection of the $2000 out-of-pocket cap on Part D spending; and,
- Stable or decreasing Part D premiums despite supply chain changes.
For Pharmaceutical Manufacturers
The impact on pharmaceutical manufacturers would vary significantly based on their business models and current manufacturing footprints. This isn't a monolithic industry with uniform interests, but more like 2 separate industries with very different stakes in this game.
Brand-name manufacturers with higher margins and more US production might actually benefit from tariffs that disadvantage foreign competitors. Many have already announced plans to expand domestic manufacturing, positioning themselves favorably for a reshoring push. Larger, more established companies have the financial resources to absorb transition costs and potentially gain market share if smaller competitors struggle.
For these manufacturers, the executive order's directive to address the IRA's "pill penalty" (the discrepancy in how small molecule drugs and biologics are treated in price negotiations) might be even more significant than the tariff investigation. Aligning the timeframes would remove a distortion that currently favors biologics, a change that could benefit traditional pharmaceutical companies.
Generic manufacturers face a much more difficult path. Operating on thin margins and heavily reliant on global supply chains, they would need significant support to make domestic production economically viable. Without carefully designed exemptions or incentives, many could exit certain product lines, potentially worsening generic drug shortages.
For Health Care Providers and Payers
Hospitals, physicians, and insurers would face downstream effects from pharmaceutical tariffs, including:
- Potential drug shortages requiring clinical protocol adjustments;
- Administrative burden of navigating exemption processes;
- Premium calculation challenges for Medicare Advantage and Part D plans; and
- Possible shifts in site-of-care decisions based on drug availability and cost.
Health care providers already struggling with post-pandemic financial pressures could face additional strain if drug costs increase or shortages worsen. Payers would need to adjust formularies and benefit designs to maintain affordability while ensuring access to needed medications.
At the recent Asembia Summit, experts from AcariaHealth detailed how the IRA's implementation has already created significant shifts in the market. The removal of the catastrophic coverage phase and implementation of the $2000 out-of-pocket maximum has moved many patients from manufacturer assistance programs to commercial fills, supported by expanded foundation assistance funds.
As Sue Farida from AcariaHealth noted, "It's really helped commercial pharmacy, but it's had its impact on the free drug programs." This transition is still underway, and adding tariff-related disruptions could further complicate an already evolving landscape.
A Balanced Approach
The fundamental tension between industrial policy goals and health care affordability objectives cannot be completely eliminated, but it can be managed through thoughtful policy design. A balanced approach would likely include:
- Targeted tariffs focused on specific pharmaceutical categories where domestic production is feasible in the near term.
- Robust exemptions for essential medications, particularly those commonly used by Medicare beneficiaries.
- Significant investments in domestic pharmaceutical infrastructure through grants, tax incentives, and public-private partnerships.
- Enhanced coordination between trade, health, and other officials to align policy objectives.
- Transparent timelines that provide predictability for all stakeholders.
This approach would advance the goal of pharmaceutical independence while minimizing disruption to patient care and drug affordability. It would also distribute transition costs more equitably across taxpayers, industry, and consumers rather than placing the burden primarily on patients.
Watching the Process Unfold
As the Section 232 investigation proceeds, stakeholders across the health care system should prepare for a period of uncertainty and potential change. The comment period for the investigation provides an opportunity for patient advocates, industry representatives, and health care providers to shape the administration's approach.
Medicare beneficiaries, in particular, cannot afford to be passive observers. The coming months will test whether it’s possible to reconcile 2 urgent goals: reducing dependence on foreign pharmaceutical production while preserving the affordability gains from the IRA. This isn’t an inevitable trade-off. It doesn’t have to be a zero-sum game. Policy solutions that succeed will be the ones that recognize the legitimate concerns of all parties involved and strive to distribute both costs and benefits in a balanced way.
With the right policy design, the US could emerge with both a more resilient pharmaceutical supply chain and more affordable medications for seniors. But with poor execution, we risk undermining the most significant drug pricing reforms in Medicare's history while creating new supply chain vulnerabilities.
The path chosen will have lasting implications not just for trade policy and industrial strategy, but for the health and financial security of millions of Americans who depend on affordable medications every day.
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Reference
Cubanski J, Neuman T, Freed M. Explaining the prescription drug provisions in the Inflation Reduction Act. KFF. January 24, 2023. Accessed May 7, 2025. https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-inflation-reduction-act/
