Will Congress Make Health Insurance More Expensive?

The National Center has a new paper out examining the wisdom of a Congressional proposal to let Medicare “negotiate” drug prices.

As our press release describes it:

Congressional Liberals’ Plans For Medicare Will Make Private Health Insurance More ExpensiveLetting Medicare Negotiate Drug Prices Also Likely to Increase Number of Uninsured

The incoming 110th Congress will make health insurance more expensive if it lets Medicare “negotiate” prescription drugs, says National Center for Public Policy Research Senior Policy Analyst David Hogberg, Ph.D.

“The liberal plan to reform Medicare is designed in a way that givse drug companies greater incentive to raise drug prices. Higher drug prices means higher prices for health insurance. And that means more people will be unable to afford health insurance,” Hogberg said.

As Hogberg points out in his new National Policy Analysis paper, “Letting Medicare “Negotiate” Drug Prices: Myths vs. Reality,” Congressional liberals and their special interest allies are trying to hoodwink the American public into thinking that by “negotiating” with drug companies, Medicare will actually be bargaining over drug prices. “Nothing could be further from the truth,” stated Hogberg. “Medicare doesn’t negotiate prices. It sets them.”

Medicare is a fee-for-service program that sets the prices it pays to medical providers. If medical providers are unwilling to accept the Medicare price, then Medicare does not reimburse them.

To see how Medicare will deal with drug prices, Hogberg points to the operation of Medicare Part B, which pays for outpatient services. For drugs such as a tetanus shot that have to be administered by a doctor, Medicare only pays the “average” private sector price of the drug.

“That’s surely how Medicare will pay for prescription drugs under the Part D prescription drug program should liberals succeed in removing the non-negotiation clause from the Medicare Prescription Drug Act,” said Hogberg. “Once that happens, drug companies will have all the incentive to push their prices higher in the private sector, since higher prices in the private sector means a higher ‘average price’ and, hence, bigger reimbursements from Medicare.”

To prove his point, Hogberg points to research conducted by economists Mark Duggan and Fiona M. Scott Morton of the National Bureau of Economic Research. They examined the effect Medicaid, the government health insurance program for the poor, had on the price of prescription drugs. Like Medicare Part B, Medicaid only pays the average private sector price for a drug. Duggan and Morton found that Medicaid’s drug reimbursement practices resulted in a seven to 10 percent increase in the average price of a prescription drug.

“With higher drug prices in the private sector,” Hogberg says, “insurance companies will have to charge higher premiums to cover the costs of those drugs. Higher health insurance costs mean that it will be harder for employers and individuals to afford health insurance, and a higher number of uninsured will be the result.”

“There is really no need for Congress to do this,” Hogberg further argues. “The private plans that administer Medicare Part D have done a very good job at keeping costs down. Part D costs are coming in under budget. The changes liberals are proposing pit seniors against those who have insurance in the private sector and in the end only would make health insurance more expensive.”

The National Center for Public Policy Research National Policy Analysis paper, “Letting Medicare “Negotiate” Drug Prices: Myths vs. Reality,” by David Hogberg, Ph.D., is available online at www.nationalcenter.org/NPA550MedicareDrugPrices.html.

The National Center for Public Policy Research is a non-partisan, non-profit educational foundation established in 1982 and based in Washington, D.C.

For those of you with a cynical turn of mind, allow me to volunteer that although the National Center has received contributions on rare occasions from the pharmaceutical industry over the last 25 years, we have not received one from the pharmaceutical industry in over four years. The last one we received amounted to less than three-tenths of one percent of our budget that year. So, if you disagree with our conclusions in this paper, you’ll just have to do so on the merits.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.