Politicians rarely get much right. I should know. I have done a few things well and, honestly, a lot of things wrong. “Government Ruins Nearly Everything”, as one Colorado writer explains clearly in her important book.
But every now and then, there is an exception to the rule. Today that exception is a bipartisan proposal by Republican Sen. Chuck Grassley and Democratic Sen. Ron Wyden to lower prescription drug costs.
How will government solve this problem you ask? By getting out of the way. Right now, when a patient can’t afford a drug, our tax dollars subsidize those catastrophic drug expenses to ensure the patient has access. This gives pharmaceutical companies every incentive to increase prices, knowing that it won’t harm most patients. Sens. Grassley and Wyden have proposed capping the amount that taxpayers will subsidize and instead allow the drug companies to negotiate directly with insurance companies. Healthy competition will reduce costs in a way that no amount of government micromanagement could hope to do.
Any change to Medicare is going to be a sensitive subject, so it’s important to understand how this works. Medicare Part D was part of George W. Bush’s Medicare Modernization Act in 2003 and reduced spending for the majority of the program’s existence, until the Patient Protection and Affordable Care Act (Obamacare) used these savings to fund expanded coverage for uninsured. Obamacare tried to make this bitter pill go down easier with a spoonful of sugar — in this case the sugar was subsidies for prescription drugs.
Less out-of-pocket spending and more subsidies means drug companies have more incentive to increase prices. This is what happened, and Medicare Part D expenses have skyrocketed. Now — happily, if surprisingly — some Republicans and Democrats are leading with a way to remove government from the formula. Their proposal is to cap out-of-pocket costs for seniors on Medicare Part D and requiring that drug companies rebate price increases above inflation to Medicare instead of taxpayer subsidies.
Drug companies don’t like having to take responsibility for dramatic price hikes; but that is how competition works to ensure the best product for the consumer at the best price. Some critics of this plan have argued that drug companies will just hike their initial price to compensate. But this doesn’t work in an economic environment where they have to convince doctors and insurance companies that these drugs are good value. If they are good value, the drugs will be introduced, patients are better off, and taxpayers don’t have to subsidize. Everyone wins under this proposal.
Politicians more often than not find themselves caught up in a vicious cycle of their own making. It is commonplace enough nowadays to be axiomatic, that most of what the legislative branch does is to come up with new laws and government interventions to try and correct the unintended consequences of previous laws and government interventions — usually creating a whole mess of problems in the process. Nowhere, probably, is that more evident than in health care.
So it is incredibly refreshing when, every once in a while, we find good people on both sides come together to offer a real correction to the original sin that created whatever costly mess they are trying to untangle. This is what the Grassley-Wyden bill does, and why it deserves America’s support.
Owen Hill is a state senator from Colorado Springs and holds a Ph.D. in Policy Analysis from the Pardee RAND Graduate School.