The Biden administration has outlined a detailed prescription for even greater government control over Americans’ medications.
If President Biden’s policy agenda were enacted by Congress, federal officials would extend Medicare’s current price-control regime into the private sector, affecting American citizens’ access to new drugs and breakthrough medications.
In his address to Congress, President Biden declared: “Americans pay more for prescription drugs than anywhere in the world. It’s wrong, and I am ending it.”
President Biden wants Medicare to be able to negotiate prices for more than 500 different drugs over the next decade while expanding the government’s regulatory power over the private sector. Concerning the Medicare drug policy, the president claimed that “it will not only save lives, but it will also save taxpayers another $200 billion.”
Although Team Biden routinely describes the process of Medicare drug pricing as a process of “negotiation”—conjuring up the image of “give and take” of private sector contracting—nothing could be further from the truth.
That’s coercion, not negotiation.
Second, as with any government price-control regime, expect a massive cost shift from the controlled to the uncontrolled sector of the economy. If pharmaceutical research and development companies are forced to offer drugs below a market price in a huge program such as Medicare, the companies will have no choice but to stop their losses by increasing their prices in the private market serving younger working families.
Price controls do not control costs; they shift costs. It has always been so.
Third, expect higher health insurance costs. While lower Medicare drug prices are expected to lower Medicare insurance premiums, expect those “savings” to result in higher premium costs outside of Medicare.
Obviously, the big insurance companies marketing to Medicare patients will come out ahead by securing lower claims costs for Medicare drugs, thus increasing their profit margins within the Medicare program. But, once again, lower health insurance premiums in Medicare, driven by government price-fixing, will incentivize private health insurers to make up the difference by raising premiums for private and employer-based health insurance.
Those big promised “savings” in Medicare will be offset by higher consumer costs outside of Medicare.
Government regulation to solve an economic problem almost always begets more government regulation to solve an unintended mess that the government created.
In this case, government-generated cost-shifting of hundreds of billions of dollars (“Medicare savings”) from the public to the private sector is to be “fixed” with, yep, more regulation on the private sector.
With such a comprehensive price-control regime, those big costs do not somehow magically disappear. Rather, the costs change shape and are shifted once again to consumers in the form of shortages of price-controlled goods and services, the items no longer produced or accessible under the government’s price regulations.
On one crucial point in this Medicare drug debate, there’s no dispute: If there is a reduction in pharmaceutical research and development (R&D), there will obviously be a drop in the production and distribution of new medications or breakthrough therapies.
The Congressional Budget Office (CBO) and independent economists agree on that point. Their differences are differences over the severity of the decline in pharmaceutical innovation. No sane official has ever suggested that a price-control strategy would increase a firm’s revenues or ensure the production and distribution of an even greater quantity of goods or services.
We know, however, that a lack of access to drug therapy, for example, can increase the utilization of nondrug medical interventions and expensive hospitalization. Serious illness and death can result.
Cheap drugs can be costly. For patients, that is.