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A limited solution for a limited problem.
Californiaís program for affordable prescription drugs.

Sally C. Pipes
February 10, 2005

California Governor Arnold Schwarzenegger is taking on one of the yearís highest profile public policy issues - the affordability of prescription drugs for people with limited means and who lack prescription coverage.

Unlike other politicians who need publicity stunts to catch the mediaís attention, Arnold did not bother with the seductive but ultimately empty idea of using taxpayer money to encourage Californians to break federal law and endanger their health by importing drugs from foreign countries. Instead, the governor proposes a plan that would target Californians in need of less expensive medicines without spending millions of taxpayer dollars and creating a whole new bureaucracy. If Arnold is successful, he will have created a program for other governors to emulate.

Arnoldís plan asks everyone to give a little. Pharmaceutical companies will spend $10 million to get the program up and running and then offer rock-bottom pricing to pharmacies. Pharmacies will reduce the customary mark-ups they ultimately pass on to consumers. Californians without prescription drug coverage who earn up to $56,600 per family of four will have to reach into their pockets to actually purchase the pills.

Everyone has some skin in the game. And the program is tailored to serve those in true need: lower income Californians without third-party coverage for drugs. It will also not foist blanket price controls on drugs and therefore stifle innovation for tomorrowís patients.

For all its virtues, the planís effect with surely be limited. It couldnít be otherwise. Despite the constant assertions of professional advocates for the needy and opponents of private health care, itís becoming clear that the cost of prescription drugs simply isnít a problem for the vast majority of Americans.

Americans spend 1 percent of their income on prescription drugs. They spend five times more on entertainment, nearly six times more eating out. Itís not until Americans reach 65 that their pharmaceutical spending eclipses their spending on alcohol and tobacco. The average senior spends just over 3 percent of his or her income on pharmaceuticals. Hollywoodís movies, cable television, and Olive Gardenís entrťes put more of a strain on American budgets than pharmaceuticals.

That Americans are able to afford their prescriptions just as they afford their housing, food, transportation, and entertainment may be hard to swallow, given the barrels of ink that have been spilt by journalists over the high costs of prescription drugs. But how else can we explain why so few seniors have taken up the Bush administration on its Medicare drug subsidy? A year into the program only 1.5 of 7 million eligible, low-income seniors have signed up despite a massive outreach program and the carrot of $1,200 of free money. Sure there are many choices that may confuse some of the frailest seniors. But seniors face many choices and make decisions without much trouble. A similar program in Illinois has had an even more meager response. Of 1.5 million supposedly needy seniors who are eligible, a mere 14,200 have signed up.

Californiaís plan will produce similar results.

Consider who in California is likely to be in need of this program. Poor families enjoy complimentary prescriptions thanks to the federal and state taxpayer support of the Medicaid system. Seniors who donít have drug coverage through a Medigap plan, a managed care Medicare plan, or a retiree health care plan, already have a plethora of discount options through Medicare Part Dís transition package. Medicaid picks up the tab for 900,000 poor seniors. Children living in families with incomes greater than two and a half times the poverty level are eligible for $5 brand name prescriptions courtesy of the taxpayer. Even childless, uninsured adults without means of support can secure pills through 83 federally-funded clinics that provide free care. They can also obtain discount cards directly from pharmaceutical companies that maintain private discount card plans.

Taxpayers, private industry, and charities are already doing an admirable job of transferring resources to ensure that those truly in need of pharmaceuticals get them cheap, if not free. Nationally, more than 6 million of the poorest seniors - 12 percent of Medicare beneficiaries - have their drugs paid for by Medicaid. Thirty states, including California, run state-sponsored drug discount programs. Eighty-nine percent of children are covered either by private insurance, Medicaid, or some other government program. Two in three of the remaining uninsured are eligible for taxpayer-sponsored health insurance but simply havenít signed up. Drug companies are spending considerable sums to band together and operate Together Rx and other private discount plans.

Arnoldís program will be a meaningful addition to this effort. And itís a program that other governors who are interested in helping the few who donít qualify for other programs would be wise to emulate. But considering the real scope of the problem, its impact will be limited in California and elsewhere.

How could it be otherwise?

Sally C. Pipes is president and ceo of the California based Pacific Research Institute. She is the author of Miracle Cure: How to Solve Americaís Health Care Crisis and Why Canada Isnít the Answer with a foreword by Milton Friedman. She can be reached at

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