February 15, 2018
The Washington Post reported on new health care spending projections from the Centers for Medicare and Medicaid Services (CMS) which show spending rising to almost 20 percent of GDP by 2026 compared to 17.9 percent in 2016. It is worth noting that these projections have consistently overstated cost growth. For example in 2005, CMS projected that health care costs would rise to 19.6 percent of GDP in 2016.
The piece also notes that prescription drugs are projected to be the most rapidly growing component of health care costs. It is worth mentioning that prescription drugs are only expensive because of government-granted patent monopolies. The free market price is typically less than 10 percent of the patent monopoly price and often less than 1 percent. The generic versions of drugs that sell for tens of thousands of dollars or even hundreds of thousands of dollars in the United States often cost just a few hundred dollars.
A number of Democratic senators have proposed legislation that would have the government pay for research upfront. This would mean that new drugs could sell at generic prices. This would eliminate all the corruption associated with the current system, including the incentive to lie about the effectiveness and safety of drugs. It would likely save more than $380 billion a year (just under 2.0 percent of GDP) on prescription drug expenditures.
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