Investing in the U.S. Health System by Lowering Drug Prices, Reducing Out of Pocket Costs, and Improving Medicare Benefits
Ways and Means, Investing in the U.S. Health System by Lowering Drug Prices, Reducing Out of Pocket Costs, and Improving Medicare Benefits, October 17, 2019
Lowering Drug Prices
Medicare Part D, Medicaid, Single Payer Catastrophic, the Public Option as an addition to Obamacare and Medicare for All share of the same drug pricing problems, the inability to bargain with drug companies for better prices. The Department of Veterans Affairs and private insurance have lower prices through negotiation, but not nearly low enough.
Monopoly and monopsony power in both the hospital and pharmaceutical industries already control costs. Such cost control enriches CEOs. There is little increased profit to shareholders, who will be paid a normal profit regardless of cost control. Negotiation will aim to reduce these profit margins, but it will be hard to hit the target. For drug pricing, reforming patent law and funding increased enforcement to prevent rebranding to avoid price loss to generics is absolutely essential.
Drug makers point to the need for basic research to their price levels, especially orphan drugs which will never make a profit due to both high development costs and the cost of small batch manufacturing. They claim that this drives the need to raise drug prices for mature drugs to subsidize the orphans. The other reality is that some hikes are undertaken because no one can stop them.
The solution for high development and testing cost is for NIH and the FDA to own the rights to orphan drugs and to contract out research and development costs as it does basic research, as well as testing and production.
Pharma would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. NIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.
Whether drug manufactures would welcome or fear such a development is hard to say. Holding a hearing on such a proposal would certainly be interesting.
Reducing Out of Pocket Costs
Welfare economics tells us that a negative effect on insurance is the lack of price discipline. Insured consumers simply have no incentive to shop around. If no one had insurance, prices would reflect supply and demand. This is the logic behind a shift to catastrophic insurance with supplemental Health Savings Accounts, along with Flexible Spending Accounts or a variant, Medical Lines of Credit.
Catastrophic insurance could be provided on a single payer basis, with deductible thresholds tied to income. If adequate economic protections are added, the discipline that the market provides evaporates and we are left with yet another tax subsidy for high income tax payers. Such subsidies require either higher tax rates (which may not be a bad thing if they discourage rent-seeking at the expense of workers) or a higher debt.
The national debt, both public and trust fund, is made possible by the ability to tax high income individuals. The implication is that the liability for the debt is not distributed on a per capita basis. Instead, it must be borne by the children and grandchildren of those who most benefited from the TCJA. The current ratio is $13 of debt liability for every dollar of taxes owed. See Attachment Two for more explanation. Our recent calculations show that a normal debt to income tax ratio of $6 to $9.
Funding, as well as price controls, is the key issue to lowering out of pocket costs for existing Medicare, other government programs and suggested reforms. With enough funding, we can eliminate all out of pocket costs, as Medicare for All seeks to do.
Improving Medicare Benefits
As we have noted in previous congressional comments, as well as Attachment One. Under Medicare for All proposals, it is assumed that insurance rates and copayments will be reduced to Medicare levels. Payments to Physicians will continue under Medicare rates. The doughnut hole in Medicare Part D, which was decreased under the Affordable Care Act, would vanish. There is no one right answer on decreasing prices for beneficiaries. We address funding options in Attachment Three, which lays out our Tax Reform proposals.
Our debt problems will be addressed using the income surtax on salaries and the asset value added tax on non-salaried income and gains from assets. The invoice VAT will fund all health spending under Medicare, etc., that does not include the option for employers to substitute or increase services or provide direct funding for workers and retirees. The latter will be funded by the subtraction VAT.
Medicaid spending for Seniors and the disabled will be shifted to the federal government into a new Medicare Part E. This will save state budgets in the out-years (as would including base funding of pensions to Social Security, with appropriate asset transfers).
Our tax plan suggests a $20 per hour *minimum wage for workers and stipends for students. No one should have to work for nothing, to be paid with only a child tax credit, This will end the need for the term “working poor.” Students from ESL to Ph.D. (regardless of migration status) who are employed will be covered by the plan that the employer participates in, through a public option, a single-payer plan or under a subsidy to training providers under the plan that covers their workers. Medicaid or a public option will be available to anyone who falls through the cracks, even without pre-registration. The latter will be federally funded but managed by state and local case workers in governmental or charitable settings.
*No worker is ever kept on shift absent workload, regardless of wage. No high wage worker is allowed to go home when customers are waiting. It is why overtime pay exists.
Attachment One - Hearing on Pathways to Universal Health Coverage, June 12, 2019
Attachment Two – The Debt, The Future is Calling: It Wants a Refund, 2019
Attachment Three- Tax Reform, Center for Fiscal Equity, September 13, 2019
Lowering Drug Prices
Medicare Part D, Medicaid, Single Payer Catastrophic, the Public Option as an addition to Obamacare and Medicare for All share of the same drug pricing problems, the inability to bargain with drug companies for better prices. The Department of Veterans Affairs and private insurance have lower prices through negotiation, but not nearly low enough.
Monopoly and monopsony power in both the hospital and pharmaceutical industries already control costs. Such cost control enriches CEOs. There is little increased profit to shareholders, who will be paid a normal profit regardless of cost control. Negotiation will aim to reduce these profit margins, but it will be hard to hit the target. For drug pricing, reforming patent law and funding increased enforcement to prevent rebranding to avoid price loss to generics is absolutely essential.
Drug makers point to the need for basic research to their price levels, especially orphan drugs which will never make a profit due to both high development costs and the cost of small batch manufacturing. They claim that this drives the need to raise drug prices for mature drugs to subsidize the orphans. The other reality is that some hikes are undertaken because no one can stop them.
The solution for high development and testing cost is for NIH and the FDA to own the rights to orphan drugs and to contract out research and development costs as it does basic research, as well as testing and production.
Pharma would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. NIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.
Whether drug manufactures would welcome or fear such a development is hard to say. Holding a hearing on such a proposal would certainly be interesting.
Reducing Out of Pocket Costs
Welfare economics tells us that a negative effect on insurance is the lack of price discipline. Insured consumers simply have no incentive to shop around. If no one had insurance, prices would reflect supply and demand. This is the logic behind a shift to catastrophic insurance with supplemental Health Savings Accounts, along with Flexible Spending Accounts or a variant, Medical Lines of Credit.
Catastrophic insurance could be provided on a single payer basis, with deductible thresholds tied to income. If adequate economic protections are added, the discipline that the market provides evaporates and we are left with yet another tax subsidy for high income tax payers. Such subsidies require either higher tax rates (which may not be a bad thing if they discourage rent-seeking at the expense of workers) or a higher debt.
The national debt, both public and trust fund, is made possible by the ability to tax high income individuals. The implication is that the liability for the debt is not distributed on a per capita basis. Instead, it must be borne by the children and grandchildren of those who most benefited from the TCJA. The current ratio is $13 of debt liability for every dollar of taxes owed. See Attachment Two for more explanation. Our recent calculations show that a normal debt to income tax ratio of $6 to $9.
Funding, as well as price controls, is the key issue to lowering out of pocket costs for existing Medicare, other government programs and suggested reforms. With enough funding, we can eliminate all out of pocket costs, as Medicare for All seeks to do.
Improving Medicare Benefits
As we have noted in previous congressional comments, as well as Attachment One. Under Medicare for All proposals, it is assumed that insurance rates and copayments will be reduced to Medicare levels. Payments to Physicians will continue under Medicare rates. The doughnut hole in Medicare Part D, which was decreased under the Affordable Care Act, would vanish. There is no one right answer on decreasing prices for beneficiaries. We address funding options in Attachment Three, which lays out our Tax Reform proposals.
Our debt problems will be addressed using the income surtax on salaries and the asset value added tax on non-salaried income and gains from assets. The invoice VAT will fund all health spending under Medicare, etc., that does not include the option for employers to substitute or increase services or provide direct funding for workers and retirees. The latter will be funded by the subtraction VAT.
Medicaid spending for Seniors and the disabled will be shifted to the federal government into a new Medicare Part E. This will save state budgets in the out-years (as would including base funding of pensions to Social Security, with appropriate asset transfers).
Our tax plan suggests a $20 per hour *minimum wage for workers and stipends for students. No one should have to work for nothing, to be paid with only a child tax credit, This will end the need for the term “working poor.” Students from ESL to Ph.D. (regardless of migration status) who are employed will be covered by the plan that the employer participates in, through a public option, a single-payer plan or under a subsidy to training providers under the plan that covers their workers. Medicaid or a public option will be available to anyone who falls through the cracks, even without pre-registration. The latter will be federally funded but managed by state and local case workers in governmental or charitable settings.
*No worker is ever kept on shift absent workload, regardless of wage. No high wage worker is allowed to go home when customers are waiting. It is why overtime pay exists.
Attachment One - Hearing on Pathways to Universal Health Coverage, June 12, 2019
Attachment Two – The Debt, The Future is Calling: It Wants a Refund, 2019
Attachment Three- Tax Reform, Center for Fiscal Equity, September 13, 2019
posted by Michael Bindner at 10:00 AM
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