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Commentary

Save the Medicare Benefit
Washington Times, 3-15-06

The benefit itself, in the meantime, will be a target for various “reform” bills that will try to exert more direct government control over the program. In this editorial, the Washington Times comes to the defense of the benefit and argues that making Uncle Sam the nation’s largest direct purchaser of medicines would be a serious mistake:

Medicare's market-driven drug benefit has had the fastest start up a federal program in recent memory. More seniors were able to get coverage in three months than were able to obtain it after years under state Medicaid and prescription drug plans. Millions of poor seniors that were spending 30 percent of their income on drugs now pay nothing. As a result, they are in better health and the total cost of their care will go down. …
Unfortunately, the Senate is now considering a bill that would turn America's market-driven Medicare program into a single payer clone of the Canadian system. Indeed, the bill -- sponsored by Sens. Olympia Snowe and Ron Wyden -- would do Canada one better: Because Medicare is about 40 percent of all drug spending, it would give the federal government control over the biggest share of the prescription drug market in the entire world.

When we include Medicaid and the Veteran’s Administration drug purchases into this total, the government would foot the bill for about 60% of the total U.S. drug supply. This is a very dangerous trend. Government undoubtedly has the right to bargain for the best prices it can when it purchases goods and services from the private sector. But when the government is the monopsony purchaser in a given field, it tends to drive prices down too much and discourage additional innovation and investment in new products.

In the 1970s, government price controls on gasoline led to immediate and protracted shortages. In the field of pharmaceuticals, ironically, government attempts to restrict prices or otherwise ration consumption of expensive drugs tend to be felt incrementally, over long periods of time (because drug development cycles tend to be protracted over several years).

Patients today might not notice many effects from government-imposed prices, because companies have already sunk costs into developing the medicines on the market now. Five or ten years later, however, we will have fewer new medicines as a result of reduced financial incentives. We can debate the wisdom of this policy on balance, but no one should pretend that we would not be robbing the future of some new medical discoveries.



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