The tide of populism has risen to the extent that a vocal minority of GOP politicians and pundits have begun to sound more like Rep. Alexandria Ocasio-Cortez (D-N.Y.) and other progressive Democrats on some issues. Take the Republicans on Capitol Hill and in the Trump administration who have been quoted in recent weeks expressing openness to raising the top federal income tax rate on upper income households.
“It sounds like Bernie Sanders economics,” Steve Moore, president of the Committee to Unleash Prosperity and former Wall Street Journal editorial board member who President Donald Trump nominated for the Federal Reserve Board in his first term, said of the proposal to raise the top marginal income tax rate for certain taxpayers. Meanwhile Steve Bannon, a former Trump adviser who is now calling on Republicans to raise federal income tax rates for upper income filers, claims that’s precisely the point. According to Bannon, it would be politically genius for Republicans to concur with the progressive argument that upper income taxpayers should pay higher tax rates even though they currently bear a disproportionate share of federal income tax burden due to what is already a steeply progressive code.
Washington isn’t the only place where government-expanding policy proposals appear to be gaining some GOP support. The same phenomenon is on display in a few statehouses.
Consider, for example, Extended Producer Responsibility (EPR) legislation now on the books in five blue states. EPR legislation establishes a state regulatory regime through which fees are assessed on consumer goods depending on the amount of plastic packaging they use. The first EPR bill was enacted in 2021 in Maine. Since then, EPR has been approved in Oregon, California, Colorado, and Minnesota. The number of states with an EPR law for plastic packaging could soon rise from five to seven, depending on the actions taken by two Democratic governors, one of whom is considered a 2026 presidential prospect.
On April 7, lawmakers in Maryland, where Democrats control the state legislature, passed an EPR bill, which is now on Governor Wes Moore’s (D) desk. Washington State lawmakers also recently passed EPR legislation, which is on Governor Bob Ferguson’s (D) desk awaiting his consideration.
In 2025, however, lawmakers in Republican-run states have begun to display more interest in EPR. In Tennessee, for example, a Republican state senator introduced an EPR bill in a state legislature where the GOP has supermajorities in both chambers. That bill did not pass, but it’s noteworthy that a new policy trend originating from the bluest states — one involving the imposition of a new, cost-increasing regulatory regime — is now garnering interest even in deep red states.
Proposals To Further Regulate PBMs And Impose New Pharmacy Taxes Introduced In Nearly 20 States
Beyond EPR, there are other areas where legislation increasing state regulation of certain products, services, and business models are gaining traction in both blue and red states. Take House Bill 163, legislation introduced this year in the North Carolina General Assembly, which seeks to further regulate Pharmacy Benefit Managers (PBMs), requiring greater disclosure for a practice known as “spread pricing,” as well as adding what amounts to a new pharmacy tax on prescriptions filled in the state. First, it’s helpful to first provide some background on “spread pricing,” along with state-level efforts to regulate and even prohibit it.
“Virtually every single state has passed some form of PBM regulations over the last several years,” notes the National Community Pharmacy Association. Thus far 16 states have laws prohibiting spread pricing. Last year, according to Multistate, “33 bills were enacted in 20 states related to the regulation of pharmacy benefit managers,” a trend that has continued into 2025.
Mississippi legislators recently rejected a bill seeking to regulate spread pricing similar to North Carolina’s HB 163. In an article about that proposal, Russ Latino, editor of the Magnolia Tribune, does a thorough job of explaining a complex system, starting with a rundown of the key stakeholder categories:
Who are the players in the pharmaceutical industry and what role do they play?
· Third-Party Payers: These include private health insurance companies, government payers like Medicare and Medicaid, and private employers who self-fund their own health insurance plans for employees (sometimes called ERISA plans). Third-party payers cover a substantial portion of prescriptions sold in the U.S. in exchange for premiums paid by employers, employees and individuals, or through taxpayer funded programs.
· PBMs: When insurance companies began covering prescription drugs in the 1960s, PBMs were created to negotiate with drug manufacturers and pharmacies on their behalf.
PBMs use their collective purchasing power to win price reductions from drug companies, which are passed on to third-party payers and ultimately to patients. PBMs also make drug coverage recommendations (referred to as a formulary list) to incentivize the use of what they deem to be the most effective, most affordable medications.
The other key players outlined by Latino include, Wholesale Drug Distributors and Pharmacy Services Administrative Organizations (PSAOs). While pharmaceutical manufacturers set initial drug prices, they typically don’t sell directly to pharmacies today, who largely procure their inventory from wholesale distributors.
“Large pharmaceutical chains negotiate their own contracts for reimbursement with PBMs,” Latino explains. “Because they buy larger volumes of drugs, they have more negotiating leverage. Independent pharmacies retain PSAOs to negotiate on their behalf and enter into contracts with PBMs.”
In addition to providing a comprehensive overview of the key stakeholders, Latino also offers a helpful primer on the flow of money through the system:
· Purchase of Drugs: Pharmacies buy drugs directly from Wholesale Distributors. The price paid by pharmacies is negotiated based on volume.
· Reimbursement: When a pharmacy fills a prescription it is either paid directly by the consumer or is reimbursed by a Third-Party Payer, often with a consumer “co-pay.” The rate of reimbursement is contingent upon the contract between the Third-Party Payer’s PBM and the pharmacy (or the PSAO that negotiates on behalf of independent pharmacies).
· Rebates: Wholesale Distributors offer rebates to pharmacies, often tied to volume purchases of generic drugs. Drug manufacturers provide rebates to PBMs, who play a substantial role in deciding which drugs Third-Party Payers will cover and the rate at which they will offer reimbursement. 91 percent of these rebates are passed on to Third-Party Payers. This helps to lower the cost of providing health insurance to employees for employers.
· Spread Pricing: This is the difference in the rate a Third-Party Payer agrees to pay for a prescription and the rate negotiated between the PBM and pharmacy or the PBM and PSAO.
As Latino explains, spread pricing “has become controversial in the larger national debate over PBMs.” While PBMs have become a popular political target, if they didn’t provide some form of value they wouldn’t exist. Third-Party Payers, like employers, choose spread pricing options because it creates certainty and reduces their own risk. If a pharmacy charges more for a drug than the employer agreed to, the employer pays the lower cost and the PBM takes the loss.
As can be seen from Latino’s helpful breakdown, this is a complex issue. That’s why he recommends that lawmakers who are considering proposals targeting PBMs, like HB 163, to “not think myopically, but rather, in terms of what is good for the entire healthcare ecosystem and the broader economy.”
In that Magnolia Tribune piece, Latino goes on to highlight facts that might lead some to call into question why PBMs are being vilified and legislatively targeted. “Amid allegations of ‘excess,’ the better metric would be to look at net profit margin,” Latino points out. “According to the left-leaning Brookings Institute, the average net profit margin for PBMs is 4%. To put that into context, the blended net profit margin of companies in the S&P 500 in the 4th Quarter of 2024 was 12.1%.”
“The National Community Pharmacists Association — the trade association representing independent pharmacists — reports the average gross profit margin for independent pharmacists as 21%,” Latino pointed out in comparison. This all helps explain why Brookings concluded that even if government were to prohibit PBMs from having any profit, “it would have a negligible effect on drug prices.”
Critics of HB 163, such as the Affordable Healthcare Coalition of North Carolina (AHC), also point to the bill’s imposition of a new pharmacy tax as a key flaw that “would increase costs by billions over the next decade.” Similar pharmacy tax proposals have been introduced this year in 18 states.
“This tax would be a windfall for major pharmacy chains but provide no added benefit to the consumer,” AHC explained in a blog post, which also criticized the fact that HB 163 “eliminates an optional tool that many businesses use for price predictability on prescription drugs.”
“Taking away choices for how businesses can best plan and pay for their worker’s prescriptions is not a reform that will help anyone,” AHC added. When a similar proposal was considered in Mississippi, Latino advised that “caution is the right temperament” to approach such issues, noting that it’s well documented how “national and state attempts to regulate the healthcare marketplace have cumulatively added up to one horribly broken system.” It will soon be known whether most North Carolina legislators agree with that sentiment.
The North Carolina House has scheduled HB 163 to be taken up on the floor this Tuesday, April 29. If the House does not approve HB 163 by May 8, the bill dies. Regardless of the outcome with HB 163, its advancement is one of many recent examples demonstrating that regulation-boosting bills can garner interest in the bluest states, as well as those where the GOP has a legislative supermajority.
