November 25, 2005
Dean Baker
Sacramento Bee, November 25, 2005
This holiday season, tens of millions of seniors are learning the details of President Bush’s Medicare prescription drug plan the hard way: by signing up for benefits. This plan, which was supposed to make it easier for hard-pressed seniors to afford their drugs, looks more like a Halloween horror movie that is still there when you leave the theater.
Seniors are being forced to comb through obscure details of dozens of plans, which differ by the drugs they cover, their co-pays and deductibles, and the length of the fine print warning that conditions could change after enrollment. Even those who successfully overcome the enrollment hurdles will still often find that they face exorbitant drug costs. While the Bush plan will end up costing the federal government more than $100 billion annually, there are still many moderate income seniors who will pay $4,000 to $5,000 each year for their drugs, even with the new benefit.
This is what you get when you design a drug benefit that is intended to help the pharmaceutical industry and the insurance industry more than Medicare beneficiaries. While the drug industry will benefit from charging high prices, and insurers will no doubt earn a nice profit as intermediaries in this system, taxpayers and the beneficiaries themselves will pay the price in the form of higher costs and a ridiculously complex system.
It didn’t have to be this way. It would not have been difficult to design a prescription drug bill that was simple and cost-effective, both for the government and the seniors themselves. In fact, several such bills were offered for debate prior to the passage of the Bush plan.
The key to a cost-effective plan was to have Medicare negotiate prices with the drug companies, as it does with doctors, hospitals and other health care providers. Medicare could use its enormous buying power to push down drug prices by 40 percent or more compared to the prices that seniors face today. Medicare beneficiaries would then have prescription drug coverage included as part of their overall Medicare package, just as most people who get health insurance through their work also have prescription drug coverage. This would leave them with modest co-payments, which would be subsidized in the case of low-income seniors.
The dirty secret of the prescription drug story is that drugs are almost always cheap to produce. Those drugs that sell for $500, $600 or even $1,000 a prescription rarely cost more than $20 to $30 to manufacture safely. Drug prices are high because the government gives pharmaceutical companies patent monopolies that allow them to sell their drugs without competition.
Patents do provide incentives to support research, but we need a more efficient system. Patents are a relic of the medieval guild system. They are completely out of place in the 21st century. While patents provide incentives for drug research, they also provide incentives for companies to conceal evidence that their drugs might be harmful, as recently came to light with Vioxx, among other drugs. They also provide incentives for wasteful marketing campaigns. The industry spends more money marketing its drugs than it does on research.
Patents also provide incentives for developing copycat drugs that largely duplicate the function of existing drugs, rather than researching breakthrough drugs that find new cures or treatments. Close to two-thirds of research spending goes to developing copycat drugs.
In the 21st century, there are more efficient ways to support research that would allow drugs to be sold in a free market. Without going into details, it is worth noting that the public sector already pays for almost as much biomedical research as the drug companies, and everyone (including the drug industry) recognizes the high quality of this research.
In short, we can make drugs affordable to our seniors and everyone else, if we are prepared to put the public interest ahead of the pharmaceutical industry. Because Bush took the opposite course, the Medicare prescription drug benefit was the biggest turkey on the table this Thanksgiving.
Dean Baker is Co-Director of the Center for Economic and Policy Research, in Washington, DC.
