By: James Overmoyer
On June 27th, 2017, Alex Smith slipped into a diabetic coma from which he never awoke. Smith was rationing his insulin, a dangerous practice he began after aging out of his mother’s health insurance plan and being unable to afford his medication.
Stories like Smith’s are one of the many reasons healthcare costs and the high prices for prescription drugs are expected to be a big topic in the coming election.
Reuters reports that the United States government, through Medicare, pays three times what Britain pays for the 20 top-selling medicines. A US Health and Human Services study released on October 25th of 2018 revealed that Medicare has been paying 80% more than other advanced industrial countries for the “most costly physician-administered medicines.”
The problems within the current US drug market are multi-faceted. The constant demand for drugs allows the pharmaceutical industry to raise prices without losing customers, which generates massive profits. Drug companies also lack competition from generic brands due to patenting and propietal processes, which allows them to set prices on their drugs without market forces to hinder overpricing.
Pharmaceutical companies can also increase prices because of US programs like Medicare, which pays for about $8.5 billion dollars of drugs a year. These programs allow companies to take advantage of government payments - payments that have been pushed higher because the US does not negotiate prices directly like some other countries do. Instead, the US allows middle-man insurance companies to negotiate prices. Insurance company critics suspect, however, that these companies are failing to negotiate for the best prices due to a combination of insufficient motivation and kickbacks from drug manufacturers.
The US spends about 18% of its GDP on healthcare, which is 6-9% higher than other similar countries while covering around 9% less of its population. The bad news is that the extra money the US spends on healthcare doesn’t translate to better outcomes: life expectancy is shorter, obesity is higher, and the rate of maternal and infant death is also higher.
Some of the profit from high drug prices allows administrators to receive significantly higher salaries than their European counterparts. The US also spends more on high administrative costs for nurses and doctors. Researchers at Harvard University analyzed data from international organizations on types of spending and performance outcomes between the U.S. and other high-income countries and found that “two-thirds of the difference in health care costs between the U.S. and other countries were rolled up into medication costs, expensive tests and procedures and administrative costs.”
This translates to high costs for medication which are felt most by the poor and those without health insurance, particularly those who need certain maintenance medications to survive.
Many potential solutions to healthcare costs in the US have been presented, but Congress has struggled to arrive at any consensus on the best course of action.
One method of addressing the problem is controlling prices with a system similar to that of other countries. If modeled off of Germany, taxpayers would pay a flat tax rate for healthcare. Bernie Sanders’ Medicare-for-all plan suggests expanding Medicare to cover all Americans, eliminating the insurance company middle man. Another option might be to set prices congruent with current prices in the European Union. Politicians like Paul Ryan, Rand Paul, and conservative organizations have argued that the US market needs more competition and regulation. Currently, the US has a divided healthcare system with both private and public entities, which makes it easy for companies to take advantage of the system. While many nations nationalized healthcare, conservatives argue it could be fixed with capitalism.
Because of the breadth of the problem, solving it will take time and compromise in Congress.