The Senate just passed The Inflation Reduction Act of 2022. Many commentators have focused on the bill’s effects on climate change and its new spending—which is not likely to slow inflation, but worsen it. But the legislation also includes many changes to Medicare, the government health insurance program for people 65 or older.
One change is that Medicare would be empowered to “negotiate” drug prices with drugmakers. Before the House votes on this bill on Friday, you might want to test your knowledge of Medicare and price negotiation with this party game of “Two Truths and a Lie.” Can you identify which of the following statements is NOT true?
A. Medicare pays for more than 30% of the nation’s retail drug spending.
B. Canadians and Europeans face lower drug costs because of government negotiation.
C. How Medicare pays for drugs only affects Medicare beneficiaries.
A. TRUTH. Medicare buys a large and increasing share of the nation’s drugs. Medicare’s share of the nation’s retail prescription drug spending increased from 18% in 2006 to 30% in 2017 and is likely higher today. Why is this? For one thing, seniors are more likely to use prescription drugs and have multiple prescriptions. According to Kaiser: “More than half of adults 65 and older (54%) report taking four or more prescription drugs compared to one-third of adults 50-64 years old (32%) and about one in ten adults 30-49 (13%) or 18-29 (7%).”
B. TRUTH. Canada and some European countries have government bodies that exist to weigh the cost and benefits of drugs (and other health treatments) and negotiate or set prices. One example is the National Institute for Health and Care Excellence (NICE) in the U.K. While people in other countries may benefit from lower drug prices, this often comes with the tradeoff of reduced access to the variety and quality of drugs, especially for patients facing rare or expensive conditions. For example, as Sally Pipes notes, “While U.S. patients had access to 96% of all new cancer medications launched between 2011 and 2018, Canadian patients had access to fewer than 60%.” It’s nice that people in other countries can pay less out of pocket for their drugs, until they are unable to get those drugs at all.
C. LIE. Today the U.S. government can already negotiate—or set—the prices for drugs in the Medicaid program (for low-income Americans) and veterans’ health programs. As a result, “commercial” or privately-insured Americans pay more for drugs in order to subsidize drug costs in these “negotiated” areas. Adding Medicare’s large market share to the “negotiated” column would likely increase drug prices even more for the non-Medicare population (until we end up with Medicare for all, Democrats’ ultimate goal).
It’s also worth noting that the non-Medicare population (as well as Medicare beneficiaries) would pay for Medicare price-setting with more than our dollars. We would pay with our health, as government pricing of drugs would result in less investment in the research, development, and launch of new drugs. Drugmakers will be less keen to invest the millions of dollars necessary to develop, test, and bring to market new innovations when they face the specter of price controls.
Bottom Line:
Medicare price negotiation sounds like a good way to empower Medicare beneficiaries against profit-hungry drug companies. But when you consider the full scope of the possible unintended consequences, this proposal just isn’t worth the cost. Lawmakers should look to better ideas—like healthcare price transparency—instead of heavy-handed big-government price setting.