Donald Trump doesn’t know what he thinks about health care. He has been a periodic advocate of a United Kingdom–style monopoly system and a periodic critic of such monopolies. He says that we should repeal the so-called Affordable Care Act and replace it with . . . something. Something “terrific.”
Trump likes to talk about “deals,” and to tout his purported expertise as a dealmaker. To the extent that he has communicated anything that deserves to be called an idea on the issue of health care, it is in joining in with Barack Obama, Bernie Sanders, Hillary Rodham Clinton, et al., in calling for government negotiation with pharmaceutical companies over prescription-drug prices. Trump promises to apply the business acumen he has brought to the casino racket and his reality-television enterprise to negotiate better deals on pharmaceuticals.
Trump promises to apply the business acumen he has brought to the casino racket and his reality-television enterprise to negotiate better deals on pharmaceuticals.
EDITORIAL: Health Scare
Barack Obama had campaigned on undertaking such negotiations, but, in a rare concession to reality, he quietly dropped from the ACA a provision that permitted them. The idea that a team from the Centers for Medicare and Medicaid Services is going to sit around a table with the top brass from Merck and Purdue and hammer out standing deals covering the thousands of permutations of pharmaceuticals American medical patients receive is impractical, to say the least. The Obama administration and Mrs. Clinton have since changed their approach, suggesting that the government become involved in direct negotiations over the prices of a small number of very expensive drugs, such as biologics, especially those that do not have very many competitors.
Trump goes astray in the same way that Obama, Sanders, and Clinton do: in the assumption that what ails American health care is profit.
There are six classes of care that are “protected” by federal regulation, meaning that private insurance plans doing business with Medicare are obliged by law to cover “all or substantially all” prescription drugs related to them. Which is to say, the law ensures that insurance companies are in a weak negotiating position, because they cannot walk away from the transaction — in the end, they are required by federal law to buy the drugs. There’s a little poetic justice in that: Under the ACA, insurance premiums are going up, because consumers are required by law to carry certain insurance; the insurance companies are in the same position (an unwieldy federal mandate) vis-à-vis certain pharmaceuticals.
The Congressional Budget Office studied the question a few years back and concluded that direct negotiations probably would not have much effect on overall prices. In a report for the National Bureau of Economic Research, professors Mark Duggan and Fiona M. Scott Morton found that a larger Medicaid footprint in the market for particular drugs was associated with higher prices, not lower prices: A 10 percent increase in Medicaid’s share of the buyers’ market for a prescription was associated with a 7 to 10 percent increase in the average price of that prescription.Trump goes astray in the same way that Obama, Sanders, and Clinton do: in the assumption that what ails American health care is profit. What actually ails American health care is demographics, with an aging society undermining the finances of Medicare and the Social Security disability program; defective markets in which state-by-state insurance licensing prevents the emergence of a national market, and hence national competition, for insurance services; preexisting regulatory burdens that all but ensure high prices for health-care consumers; special-interest concessions written into every program from Medicaid to Obamacare, paid out as the price of industry support for various federal interventions. If Trump’s confused answer about “lines around the states” was a reference to the fractured U.S. insurance market, then he is correct to identify that as a problem. Beyond that, his strategy seems to consist mainly of adjectives: wonderful, terrific, etc.
Trump’s error is useful to consider inasmuch as he is not the only one who imagines the federal government in the role of master dealmaker in the health-care market. In reality, the main problem isn’t a lack of deals but a lack of competitive markets, consumer choice, and transparent prices. Two-party deals between Big Government and Big Pharma are one way to make that situation even worse than it is.