Brandon Arnold: Trump drug rebate gambit rests on shaky legal authority

$7.9 billion might not seem like much money when measured against the trillions of dollars the federal government has spent in response to covid-19 — and the trillions more it might soon spend. But President Trump has a $7.9 billion drug rebate proposal that almost certainly violates his administration’s authority — and the fate of the proposal could speak volumes about how fiscal policy and separation of powers work in Trump’s Washington.

Trump announced the proposal in question back in September. His administration would spend approximately $7.9 billion by sending $200 cards, which would resemble credit cards, to an estimated 39 million seniors who participate in Medicare’s prescription drug program.

To implement the plan, the Department of Health and Human Services (HHS) bypassed congressional approval and reportedly tried to fast-track the cards so some arrive prior to the November election — a move that has raised potential legal and ethical problems. The administration even reportedly planned to spend $19 million sending letters to seniors in October, just to tell them they will be receiving the cards in the mail at a future date. This raises even further concerns about the timing and haste of the administration’s plan.

Even setting aside the election-related concerns, the plan is dubious at best. It utilizes questionable legal authority to bypass Congress and directly spend money by claiming to be a “demonstration project” under Section 402 of the Social Security Amendments of 1972. This obscure provision permits the Centers for Medicare and Medicaid (CMS) to allow for the creation of experimental, innovative new payment systems, benefit structures or other programmatic reforms, as long as they don’t result in higher government spending. The intent of the provision is to allow CMS to test small-scale demonstration projects and explore new ways to save taxpayers money and improve health outcomes for seniors.

However, Trump’s proposal tests nothing and fails to qualify as a demonstration project. Sending $200 cards to seniors does not constitute any type of programmatic reform that could lead to a better, more efficient Medicare program. A $200 card might provide a nice one-time boost to seniors, but does absolutely nothing to address any of the underlying factors contributing to high drug costs.

The scope of the plan — the benefit would be sent to tens of millions of seniors — far exceeds the intent of the waiver authority. Simply put, it fails to meet the basic conditions necessary to utilize Section 402, including the provision’s budget-neutrality requirement. Here CMS claims it will fully offset the cost of its proposal by applying savings from a yet-to-be-implemented scheme that would peg drug costs to those in foreign countries. This flawed international drug scheme is still in the development stages, though, and is certain to face legal challenges that could permanently prevent its enactment.

Therefore, Trump’s proposal isn’t budget-neutral. It will cost taxpayers $7.9 billion, and the executive branch does not have the authority to spend these funds unilaterally. The Constitution enshrines Congress with the power of the purse. The Trump administration should abandon this plan entirely. However, if the administration insists upon moving forward with its $200 senior card plan, it must go through Congress.

Of course, Trump would face considerable resistance on Capitol Hill were he to ask Congress to approve his plan. Congressional Democrats have already called for the Government Accountability Office to investigate the legality of the proposal, citing concerns about the suspicious proximity to the election and the wisdom of drawing $7.9 billion from an already depleted Medicare trust fund. On top of that, a Trump appointee who serves as the general counsel at HHS has suggested this proposal might violate federal election law and has called for additional review from the Department of Justice.

With a lack of policy justification and considerable legal obstacles in place, it’s time to tap the brakes. If the administration’s claims that this benefit has nothing to do with the election are accurate, then there’s no need to press ahead with the current level of urgency. Instead, HHS should move more deliberately to ensure that all legal requirements are met before proceeding.

Brandon Arnold is executive vice president of the National Taxpayers Union, a nonprofit dedicated to advocating for taxpayer interests at all levels of government.