Drug Costs

Slogans, Not Solutions Over Two Nights in Detroit

August 1, 2019 1:55 pm

The two-night Democratic debate this week was dominated by discussions of health insurance. 


And it’s about time policymakers turned their attention to the real drivers of out-of-pocket healthcare costs. 


While per capita spending on medicine has fallen 1 percent annually since 2008 and premiums for Medicare prescription-drug plans are projected to fall for the second year in a row in 2019, insurance companies are shifting a higher share of healthcare costs to patients. Since 2006, deductibles have skyrocketed 300 percent and the amount patients pay for coinsurance has nearly doubled.


Pharmaceutical companies are often cast as the villains in the healthcare debate, but insurers and pharmacy benefit manufacturers (PBMs) are frequently to blame when patients are forced to pay more for medicine and other basic services. Insurers and PBMs also keep the bulk of the savings offered by drugmakers in the form of rebates or other discounts. Once rebates and other discounts are accounted for, per-capita drug spending fell by 2.2 percent in 2018. 


These numbers differ substantially from spending at hospitals and doctors’ offices, another often-overlooked driver of higher healthcare spending. In 2018, spending on hospitals and doctoers rose 4.7 percent and 5.4 percent, respectively. (It also is worth noting that hospitals mark up prices for prescription drugs by almost 500 percent.) After Tuesday’s debate session, Axios even noted that, while companies are some of “Democrats’ favorite punching bags, hospital care is the largest driver of U.S. health prices.”


Overall, according to the Peterson-Kaiser Health System Tracker, hospitals, physicians, and clinics accounted for more than half of all health-care expenditures in 2017. Drug companies, meanwhile, were responsible for just 10 percent, or three percent higher than its share in 1970. 


This fact is probably why the vast majority of Americans report they are not overburdened by the cost of their medications. In fact, 83 percent of patients who take 1-3 medications a day told the Kaiser Family Foundation that it is “easy” for them to afford their prescriptions.


Politicians regularly ignore these facts. Instead, they resort to slogans, alluding to their well-worn argument that high drug prices have led to greater company profits. Those arguments are untrue, of course. In fact, only 8 percent of publicly traded biopharmaceutical companies ever make a profit. And the sector as a whole has lagged other industries for years, in terms of profits.


While the latest round of Democratic presidential debates didn’t feature quite as much vitriol aimed at the biopharmaceutical industry, we know that many of the candidates have floated plans that would reduce the capital available for future innovations and possibly limit patients’ access to existing medicine, including the International Pricing Index pushed by the Trump administration.


At some point, we hope those proposals get the attention they deserve, so Americans can see what impact that will have on the health-care market as a whole. The Kaiser Family Foundation also has foundthe vast majority of Americans oppose Washington policy proposals that could reduce the supply of available medications or stifle future innovation. 


When Democrats meet again in September in Houston, instead of slogans or attacks, they should be prepared to offer listeners solutions that actually would fix what is broken in the health-care system. This week’s focus on the insurance industry was a step in the right direction.