In his Wednesday night speech, President Joe Biden repeated one bit of economic illiteracy that has been demonstrably wrong for 15 years, although Democrats recited it like a magic incantation at a Gypsy roadshow.
“Let’s give Medicare the power to save hundreds of billions of dollars by negotiating lower prices for prescription drugs,” Biden said. “That won’t just help people on Medicare, it will lower prescription drug costs for everyone. The money we save can go to strengthen the Affordable Care Act, expand Medicare coverage and benefits, without costing taxpayers one additional penny.”
Every bit of this claim is flapdoodle spread on a baloney sandwich.
In terms of consumer pricing for prescription drugs, the Medicare Part D plan is one of the greatest public-policy success stories in the past quarter century. (Conservatives, not liberals, still have other gripes about the 2003 legislation that created the Medicare prescription program, but the actual consumer pricing has worked wonderfully.) Consider the history and the numbers.
When the bill was passed, Republicans insisted that having the government “negotiate” the prices would end up costing more while retarding the savings from market competition. Then in the congressional majority, they were able to reject Democratic entreaties for government negotiating and price-setting.
It’s a good thing they did. Government planners almost never understand the market. The original government estimate was that the average Part D premium would be $35 monthly. Democrats were so sure the rapacious drug and insurance companies would price-gouge that they proposed to set the base price at $35, with subsequent adjustments for inflation.
Tens of millions of seniors should be glad the Democrats didn’t prevail. The market worked far better even than Republicans had hoped. The initial average premium, when the program took full effect in 2006, was $25.93, a savings of 25% from the Democrats’ estimates. Since then, it is true, premium costs have slightly outstripped inflation (although not by all measures), but they remain well below where they would be if the original price had been set by government planners at $35 plus inflation.
Had Democrats had their way and started the price at $35, the inflation-adjusted average basic premium would now be $45.99. Instead, it remains $5 cheaper, at $41. Even that estimate, though, overstates the reality. As the Kaiser Family Foundation, a respected neutral source, explains, “it is likely that the actual average weighted premium for 2021, after taking into account enrollment choices by new enrollees and plan changes by current enrollees, will be somewhat lower than the estimated average.” Moreover, when including Medicare Advantage plans, which some 25 million out of 62 million seniors use, the average cost (including all the non-MA ones) drops all the way down to $30.
That $30 monthly, it should be noted, is more than $4 below what the original $25.93 would be once adjusted for inflation ($34.07).
Meanwhile, without government using its might to crowd private companies from the market, seniors benefit from a tremendous variety of plans from which to choose, the better to fit their personalized needs. Kaiser reports that the 30 regular plans participating in Part D amount to a 36% increase since 2017. The 27 MA plans offering options to seniors are a whopping 71% increase in those same four years.
Government “competition,” a misnomer, because government carries the weight of compulsion, would force many of these providers out of the market, reducing consumer choice and the vigor of market forces. Here’s the truth: When government “sets” a price range, that range ends up becoming a price floor as taxpayer subsidies artificially inflate costs.
Biden’s proposal wouldn’t save a penny; it would likely cost taxpayers and consumers alike by a massive amount.
For a full 15 years, the pricing mechanisms in the Medicare prescription drug program have kept premiums well beneath what government planners anticipated. That which ain’t broken shouldn’t be fixed.
