Economists argue that rising healthcare costs crowd out resources for other societal priorities such as education, infrastructure, climate change, and housing. It makes sense in theory but, until lately, it seemed a bit abstract. But right now, Congress and the administration are making the point in very real terms. Policymakers want to make big investments in those priorities, but they have to pay for it. To make up the difference, they’re planning to reduce healthcare costs, specifically Medicare prescription drug prices.
Congress and the administration are currently struggling to agree on two very big, very expensive pieces of legislation.
The first bill, which deals with traditional infrastructure, is moving through the process. The second bill is still being negotiated, but reportedly covers a laundry list of important, long overdue investments such as internet access, school loan relief, housing subsidies, expanding school lunches, expanding child tax credits, environmentally friendly farming practices, health insurance for low income people in states that aren’t expanding Medicaid, expanding Medicare, and clean energy.
Their problem is how to pay for all this without breaking the bank.
Because the Senate is split between Democrats and Republicans, the strategy they have to use is complex, obscure, and lengthy. For our purposes, the important part of this tortured process is that they need to find a way to pay for all the good stuff. In the past the “pay-fors” have involved raising revenue or dubious assumptions about past savings and future spending. This time, instead, they are looking at saving money on prescription drugs.
The leading plan is for Medicare to negotiate drug prices with manufacturers. As an added benefit, the lower prices would also apply to private plans. Current law prohibits Health and Human Services, the agency that runs Medicare, from negotiating drug prices. The US is the only developed country that doesn’t have a government system to set reasonable prices for prescriptions. It’s estimated that negotiation could save hundreds of billions of dollars by 2030 for both Medicare and for employers and consumers in private plans.
A recent poll found that 81% of Americans favor government negotiating Medicare prescription drug prices. Only 19% believe it would hurt innovation and competition.
There’s a lot of potential for savings on prescription drugs. US spending on prescriptions has risen far faster than the rest of healthcare. Almost all that increase was driven by escalating prices, not increases in volume. The Institute for Clinical and Economic Review (ICER), the national leader in developing fair healthcare prices, found that in 2019 price increases for just seven drugs cost the US health system $1.2 billion with no new evidence of effectiveness.
Spending more on healthcare might be fine if we are getting healthier, but we aren’t. If it passes, the new bill could improve the lives of Americans, paid for by lowering drug costs for all of us. It’s very rare that we get a win-win in government budgets.
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