All sides of the American political spectrum agree that rapid and unabating inflation is creating hardships for tens of millions as we emerge from a locked down and likely overstimulated economy. The House of Representatives is on the precipice of passing the Senate's Inflation Reduction Act to address this concern and restrict drug prices and continue the COVID emergency expansion of health insurance credits that are expiring at the end of 2022 until December 2025.

Concern for high (5.7%) prescription drug inflation was warranted in 1999, when the 1st Star Wars prequel menaced movie theatres. By the time of the 3rd prequel, The Revenge of the Sith in 2005, the prescription drug consumer price index (CPI) had not yet met its new millennium best level at 3.5%. Thankfully, by the release of the concluding 3rd sequel in 2019, prescription drug price inflation reached negative 0.2% and remained below 2% since following the release of the Rise of Skywalker. But Lucasfilm Force energy is more likely correlated than causal with combatting prescription price inflation.

The likely causes of abating prescription drug price inflation are combination factors ranging from fewer expensive new brand name drugs introduced, growth in generic prescription drug use and the growing use of biosimilars at far more affordable prices to provide cures and not palliative treatments requiring decades of prescription drug use.

And yet, a Jedi mind trick is in process to convince legislators that prescription drugs are a leading cause of inflation with a 1-2% annual prescription drug CPI increase compared to energy prices (41%), airline tickets (34%) and food (10%). Furthermore, the mind trick continues to posit that if the government can control Medicare drug prices, there are found credits to continue COVID-19 emergency premium tax credit relief for a potential uninsured population concurrent with 3.6% unemployment.

A recent estimate from the non-profit American Action Forum showed that extending the premium tax credits to 2024 will cost an additional $41 billion and increase health insurance coverage by 1.4 million Americans by 2024. Young Jedi accounting padawans will note that the additional cost in 2021 of $21 billion divided by 1.4 is about $15,000 per person. The average individual health insurance premium is closer to $10,000 by 2024. Thus, a policy designed to combat prescription drug inflation that doesn't exist will unnecessarily provide to health insurers (and insured) a benefit 50% inflated from market by non-virtue of the ACA's premium tax credit design.

But wait, there's more -- the new potential of premium tax credit inflation. Thanks to the fact that the composite overall U.S. inflation is currently 9% and not likely to be below 6% until 2024, the microsimulation model generating the American Action Forum's estimate needs a post-COVID tune-up from its original 2% inflation adjustment. Once completed the cost is $24 billion in 2024 to insure 1.2 million Americans. Thus, the overall inflation run-up will lead to $20,000 per new enrollee cost to taxpayers, a roughly 100% increase compared to expected average premiums in the individual market.

Of course, some states will get more of the share of the $1.2 million boost in enrollment. Large states like Texas, New York and California will see increases of 184,130, 70,158, and 228,324 respectively. Smaller states like Iowa, West Virginia and New Hampshire will see less impact with increased insured by 2024 of 8,809, 3,506 and 3,906.

It is clear that regardless of political party platform, policies that increase the number of insured individuals are a good and worthy political objective. Yet Congress should not be raising even more debt unless absolutely necessary. With rising debt levels from the previous stimulus, there should be better ways to use tax dollars where they help the most people without potentially raising premiums for others. However, getting a bipartisan solution with a 60-vote majority to address inflation and accelerate cost-effective pharmaceutical innovation might require more than Obi-Wan's skills from a galaxy far away -- but fortunately now visible thanks to the new Webb telescope. Seeing through such a broadly supported policy would truly be a new hope.

Stephen T Parente, is a Professor of Finance and Associate Dean of the Carlson Global Institute at the University of Minnesota Carlson School of Management. He was previously Senior Economist and Chief Economist for Health Policy in the White House Council of Economic Advisers.

Inflation