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In a surprise development, Senator Joe Manchin (D-WV), Senate Majority Leader Chuck Schumer (D-NY), and President Biden July 27 announced a deal on a $740 billion reconciliation bill intended to be voted on in the Senate next week that includes climate/energy, health, and tax components and achieves $300 billion in deficit reduction. The announcement followed Senator Manchin apparently backing away from talks over a broader bill two weeks ago. He said in a statement this evening, "I now propose and will vote for the Inflation Reduction Act of 2022. Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions … "

A joint release from Senators Schumer and Manchin said the bill includes $369.75 billion in Energy Security and Climate Change programs and "will be fully paid for by closing tax loopholes on wealthy individuals and corporations." According to a separate Manchin release, tax increase proposals include "a domestic corporate minimum tax of 15% [to] be applied only to billion-dollar companies or larger ensuring that America's largest businesses are no longer able to operate for free in our economy."

The Manchin statement said, "Furthermore, to avoid inevitable partisan gamesmanship and increase confidence in the fairness of the tax system, tax reform should never put U.S. businesses at a disadvantage against international competitors."

A one-page summary said the components of the deal include:

• $739 billion raised by
• 15% Corporate Minimum Tax ($313 billion)
• Prescription Drug Pricing Reform ($288 billion)
• IRS Tax Enforcement ($124 billion)
• Carried Interest Loophole ($14 billion)
• $433 billion in total investments, including
• Energy Security and Climate Change ($369 billion)
• Affordable Care Act Extension ($64 billion)

The Schumer-Manchin release said the revised legislative text will be submitted to the Parliamentarian for review and the full Senate will consider it next week. Health components have already been under the Parliamentarian's review. Speaker Nancy Pelosi (D-CA) announced support for the proposal and the expectation is the House, which is scheduled to leave for the August recess at the end of the week, would reconvene to approve a Senate-passed bill.

President Biden released a statement saying, "This afternoon, I spoke with Senators Schumer and Manchin and offered my support for the agreement they have reached on a bill to fight inflation and lower costs for American families … " He said health and energy/climate provisions will be paid for "by requiring big corporations to pay their fair share of taxes, with no tax increases at all for families making under $400,000 a year. This is the action the American people have been waiting for. This addresses the problems of today — high health care costs and overall inflation — as well as investments in our energy security for the future."

Similar to a Ways & Means BBBA provision that was subsequently dropped, carried interest is addressed with an extension of the holding period to five years.

A summary focused on "tax loopholes" said, "The corporate alternative minimum tax (AMT) proposal would impose a 15% minimum tax on adjusted financial statement income for corporations with profits in excess of $1 billion. Corporations would generally be eligible to claim net operating losses and tax credits against the AMT and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15% of the corporation's adjusted financial statement income."

On energy, the Manchin statement said the bill "invests in the technologies needed for all fuel types — from hydrogen, nuclear, renewables, fossil fuels and energy storage — to be produced and used in the cleanest way possible. It is truly all of the above, which means this bill does not arbitrarily shut off our abundant fossil fuels. It invests heavily in technologies to help us reduce our domestic methane and carbon emissions and also helps decarbonize around the world as we displace dirtier products."

The bill includes two key health care provisions: one that will allow Medicare to negotiate the price of some prescription drug prices, along with other policies aimed at tamping down the rising cost of drugs, and another that will extend the enhanced Affordable Care Act (ACA) subsidies for three years, through 2025. The drug pricing provisions are projected to save $288 billion over a decade and the expanded subsidies are expected to cost $64 billion. Provisions as included in a draft Finance bill are summarized below.

Prescription drugs (key provisions)

Medicare negotiation: The bill directs the Secretary of the Department of Health and Human Services (HHS) to establish a Drug Price Negotiation program to lower prices for certain single-source prescription drugs. For 2026, the HHS Secretary will select and publish a list of 10 "high spend" negotiation-eligible Part D drugs, increasing to 15 in 2027. In 2028, the 15 drugs can include both Part D and/or Part B drugs, increasing to 20 Part D and/or Part B drugs in 2029 and beyond. HHS will then negotiate maximum fair prices (MFP) with manufacturers of selected drugs.

• Negotiation eligible drugs: "High spend" drugs are those among the 50 single-source drugs with the highest total expenditures in the relevant category in the 12 months prior to the drug publican date. Drugs must have been licensed for at least 7 years without generic competition for small molecule drugs, 11 years without biosimilar competition for biologic products. Orphan drugs, drugs determined to be "low-spend," and vaccines will also be exempted. Small biotech drugs are exempted from negotiation for 2026–2028. Additionally, if a biologic product is selected by HHS for negotiation, the drug maker may request a one-year delay from negotiation if it provides information that confirms market entry of a biosimilar competitor within that period.
• Price ceilings: The final MFP cannot exceed price ceilings that are the lower of two numbers: 1) For Part D drugs, the negotiated price of the drug net of all price concessions, enrollment weighted for all Part D plans; for Part B drugs, the amount paid by Medicare for single source drugs and biologicals; and 2) An amount that varies based on category of drug (Short Monopoly Drugs, Extended Monopoly Drugs, or "Long-Monopoly Drugs.) For a drug in each category, the amount is a percentage of the average non-Federal average manufacturer price (AMP), and are 75%, 65%, and 40%, respectively. Negotiated prices for small biotech drugs selected in 2029 or 2030 cannot be less than 66% of non-federal average AWP.
• Excise tax: An excise tax will be levied against manufacturers during periods as a percentage of total sales of the selected drug when the manufacturer is noncompliant with the requirements of the fair price negotiation.
• Other items: The bill also includes provisions designed to prevent nonduplication with 340B price discounts and mandates PDPs and MA-PD plans to cover all selected drugs negotiated until removed from the annual list. A drug selected for negotiation would continue to be included in the program until it is removed by the HHS Secretary.

Inflationary rebates: Beginning in October 2022, if the price of a Part D drug increases more than the rate of inflation (using CPI-U as a benchmark), the manufacturer would be required to rebate Medicare the amount of the increase. Rebates for drugs covered under Medicare Part B would begin in January 2023. Beginning in January 2023, if the price of a Part B drug or biologic increases more than the rate of inflation (using CPI-U as a benchmark), the manufacturer would be required to rebate Medicare the amount of the increase. Commercial insurance sales are included for purposes of calculating rebates owed for both Part D and B drugs.

Part D redesign: Caps beneficiary Part D out-of-pocket costs at $2,000 a year for MA and Part D plans starting January 1, 2025. Starting in 2024, beneficiaries would pay nothing in the catastrophic phase. Part D premiums could not increase more than 6% a year through at least 2029. The bill also redesigns the Part D benefit coverage liabilities in the following ways:

• Initial Coverage Phase: 25% beneficiary; 65% plan; 10% manufacturer for brands and biologics
• Catastrophic Coverage Phase: 0% beneficiary; 6% plan; 20% manufacturer for brands and biologics; 20% Medicare for brands/biologics and 40% for generics

The bill also adds enhanced premium and co-pay assistance provisions for low-income seniors, includes premium stabilization provisions that would limit annual base beneficiary premium increases to no more than 6%, and mandates that plans allow beneficiaries the option to spread payment of high out-of-pocket costs over the course of the plan year (known as "smoothing") via monthly caps.

ACA subsidy extension

The package includes a three-year extension, through 2025, of enhanced ACA marketplace subsidies enacted under the American Rescue Plan. The enhanced credits removed a subsidy cliff at 400% of the federal poverty line (FPL) and lowered the final premium percentage to 8.5% of FPL, while also boosting credits for lower income levels. The subsidies are set to expire at the end of the year, which could result in premium payments skyrocketing for millions of enrollees.

• Text of the agreement is available here.
• The Schumer-Manchin release (with one-page summary) is available here.
• A summary focused on "tax loopholes" is available here.
• Senator Manchin's statement is available here.
• President Biden's statement is available here.

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