MPT WWW
Leading policy-makers and scholars explain how market forces, deregulation, and consumer choice can work to improve health care for all Americans.

Commentary

No. Private Insurers are Already Getting Discounts
Robert E. Moffit, Ph.D., The Philadelphia Inquirer, 12-6-06

In an editorial opposing the viewpoint offered by Karen Davenport, Robert Moffit argues against drug price negotiations.

There's a lot wrong with the Medicare drug program. But the intense competition that takes place among health plans offering drug coverage today isn't one of them. When the program started, Medicare officials projected that the average monthly premium would be $37; in fact, it declined to less than $24. Private health plans are securing serious discounts, benefits are generous (especially for poor seniors), and eight out of 10 seniors say they're satisfied. Private–sector negotiators are doing a good job, and the nonpartisan Congressional Budget Office doesn't think the Medicare bureaucracy would do better.

Still, some members of Congress say that with 38 million beneficiaries enrolled, the government's market "clout" as a pharmacy benefit manager would dwarf the private-sector managers already serving Medicare beneficiaries. That's not the case, however. In 2004 alone, Advance PCS covered 75 million people; Medco Health Solutions covered 65 million, and Express Scripts covered 57 million.

There is, however, one big difference between the Medicare bureaucracy and the private-sector benefit managers: Medicare has no experience managing outpatient drug benefits. Moreover, when government officials do "negotiate" drug prices, it almost invariably means setting a price below the market level, which reduces the supply of drugs or restricts the choice of drugs patients can have. Medicaid routinely restricts access to pharmaceuticals, and the Veterans Administration, often touted as a model for federal drug pricing, also has a restrictive list of approved drugs.

In a recent study for the National Bureau of Economic Research, Joseph Golec and John Vernon, professors of economics at the University of Connecticut, estimate that European drug price controls over the last 19 years resulted in a loss of about $5 billion in forgone R&D spending and 46 fewer medicines. They project that adoption of similar policies in the United States, the world's major producer of pharmaceuticals, would likewise result in much greater losses of R&D investment and new medicines.

It's a pretty sure bet that if we make European–style policy choices, we'll get European–style results. You may be spared any anxieties over whether private–sector research scientists will undertake projects worth hundred of millions of dollars in the risky business of scoring big breakthroughs against dreadful diseases. There's a simple remedy: Just take an aspirin, and complain to your congressman in the morning.



Project FDA.
  
home   spotlight   commentary   research   events   news   about   contact   links   archives
Copyright Manhattan Institute for Policy Research
52 Vanderbilt Avenue
New York, NY 10017
(212) 599-7000
mpt@manhattan-institute.org