The Medicare Paradox: How Tariffs Could Undermine IRA Drug Pricing Reforms
The Trump administration's recent announcement of national security investigations into pharmaceutical imports has set up a potential collision course with one of the most significant health care reforms in recent years.
While the White House frames these potential tariffs as essential for national security and domestic manufacturing, they could inadvertently undermine the Medicare drug pricing reforms implemented through the Inflation Reduction Act (IRA). This creates not just a policy contradiction, but a political minefield that could affect millions of seniors who depend on affordable medications.1
The Inflation Reduction Act of 2022 introduced several landmark provisions designed to make prescription drugs more affordable for Medicare beneficiaries. As a refresher, key provisions include:2
- A $2000 annual cap on out-of-pocket prescription drug costs in Medicare Part D;
- The Medicare Drug Price Negotiation Program, allowing the government to negotiate prices for certain high-cost medications;
- Limits on Part D premium growth, capped at 6% annually; and,
- Elimination of cost-sharing for vaccines covered under Part D.
These reforms represented the most significant changes to Medicare's drug benefit since its creation. Early implementation has already begun providing relief to seniors facing high medication costs, particularly those with complex conditions requiring expensive therapies.2
In response to growing concern over the so-called “pill penalty,” the Trump administration issued an executive order on April 15 aimed at correcting what it sees as a structural imbalance in the IRA. The term refers to how the IRA subjects small molecule drugs—typically pills—to Medicare price negotiation after just 9 years, while biologics enjoy a 13-year grace period.3
Critics argue this mismatch could shift investment away from more accessible, lower-cost therapies toward complex and often more expensive biologics. The executive order directs the Department of Health and Human Services (HHS) to collaborate with Congress to align the negotiation timelines, cautioning that the current framework “threatens to distort innovation by pushing investment towards expensive biological products.”3,4
How Tariffs Could Undercut Medicare's Cost Savings
The administration’s Section 232 investigation into pharmaceutical imports may result in new tariffs on both finished drugs and active pharmaceutical ingredients (APIs).1 While the intent is to reduce reliance on foreign sources and boost domestic manufacturing, the practical effect could be a spike in costs across the drug supply chain.
Generic drug manufacturers would be hit especially hard. These companies already operate on razor-thin margins and depend heavily on imported APIs. If forced to absorb new tariff costs, many may scale back or halt production—raising the risk of drug shortages. Given that generics account for roughly 90% of all prescriptions filled in the US, any disruption to this market could quickly ripple through the entire health care system, undermining recent gains in Medicare cost containment.1
But the math just isn’t mathing.
A 20-percentage point increase in the effective tariff rate on drugs could theoretically translate to approximately a 2.4% increase in overall health insurance costs, depending on how broadly the tariffs are applied and how much of the added cost is passed through to payers.1 For Medicare Part D plans already facing cost pressures from the IRA's benefit redesign, these additional costs could push premiums higher, potentially offsetting the savings seniors expected from the IRA reforms.
Medicare Part D premiums are particularly vulnerable. While the IRA caps annual premium growth at 6%, this limit may not be sufficient if tariffs significantly increase the underlying cost of medications. And yes, the 2025 Part D base beneficiary premium is set at $46.50, but even a modest increase beyond the cap in subsequent years could create political and financial backlash.5
The administration seems aware of this risk—the April 15 executive order directs officials to provide recommendations on how best to stabilize and reduce Medicare Part D premiums by October 2025, but this timeline may not align with the potential implementation of pharmaceutical tariffs.3
The Political Minefield
The political implications of this policy contradiction are significant. Medicare beneficiaries represent a powerful voting bloc, particularly in swing states with large retiree populations. Drug pricing consistently ranks among the top health care concerns for older Americans, who are more likely to take multiple medications and feel the impact of price increases directly.
The administration faces a challenging balancing act. On one hand, it has positioned itself as tough on trade and committed to bringing manufacturing back to American shores. On the other, it has promised to lower drug prices and protect seniors from excessive health care costs. These goals may be fundamentally incompatible when it comes to pharmaceutical tariffs.
Even if drug companies absorb some tariff costs rather than passing them directly to consumers, the people most impacted would be those enrolled in high-deductible employer-sponsored plans, which have fewer protections against drug price increases than Medicare or Medicaid. However, Medicare beneficiaries would still feel effects through potential premium increases and possible drug shortages.
The collision between trade policy and health care reform creates a Medicare paradox that won't be easily resolved. In next week's blog, I'll explore potential solutions the administration might pursue to navigate this contradiction, including targeted exemptions, premium stabilization measures, and alternative approaches to reshoring pharmaceutical manufacturing without sacrificing affordability.
As the Section 232 investigation proceeds, the question remains: can America achieve pharmaceutical independence without undermining recent gains in drug affordability?
Join me every Wednesday as I highlight key court decisions, review notable health policies, and analyze what’s behind the bill in health care.
References
1. Choi J, Weixel N. Why Trump’s pharma tariffs are a political minefield. The Hill. April 22, 2025. Accessed April 22, 2025. https://thehill.com/policy/healthcare/5259496-trump-pharmaceutical-tariffs-threat/
2. Cubanski J, Neuman T, Freed M. Explaining the prescription drug provisions in the Inflation Reduction Act. KFF. January 24, 2023. Accessed April 22, 2025. https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-inflation-reduction-act/
3. The White House. Executive order on lowering drug prices by once again putting Americans first. April 15, 2025. Accessed April 22, 2025. https://www.whitehouse.gov/presidential-actions/2025/04/lowering-drug-prices-by-once-again-putting-americans-first/
4. Sidley Austin LLP. Drug pricing executive order aims to end Inflation Reduction Act "pill penalty," resurrect policies from first Trump administration. April 17, 2025. Accessed April 22, 2025. https://www.sidley.com/en/insights/newsupdates/2025/04/drug-pricing-executive-order-aims-to-end-inflation-reduction-act-pill-penalty-resurrect-policies
5. Medicare Advantage and Medicare prescription drug programs to remain stable as CMS implements improvements to the programs. CMS.gov. September 27, 2024. Accessed April 22, 2025. https://www.cms.gov/newsroom/fact-sheets/medicare-advantage-and-medicare-prescription-drug-programs-remain-stable-cms-implements-improvements
