Legislative Approaches to the Prescription Drug Crisis
Volume C, No. 10October, 2000
The growing cost of drugs is a terrible burden. “Market forces” work against consumers, who are powerless against drug companies. People need the help of government on two fronts: to provide health coverage – including prescription drugs – for the uninsured, along with action to lower drug prices.
Paying for drugs has always been a problem, but it is dramatically more serious today. The skyrocketing cost of drugs is driving double-digit increases in health care costs. It limits the accessibility of health care and is hurting consumers, health care providers, health plans, employers who pay for health coverage for their workers, and taxpayers.
The problem is not necessarily that a particular pill costs more today than it did a few years ago. The major factor is that new medications, which can be extraordinarily effective, are also extraordinarily expensive. Today, Blue Cross spends more on drugs than on hospital care.
Health plans and employers are trying to shift the cost of drugs back to the consumer, through increased co-payments and exclusions from coverage. This doesn’t hold down drug costs – it simply shifts those costs to consumers. And individuals have no leverage when dealing with multinational drug companies selling patented drugs.
The drug companies argue that if we restrict their income, they won’t be able to invest in research. But in fact they are extraordinarily profitable – making much more than is needed to cover their research costs.
Large health plans that pay for prescription drugs can usually negotiate substantial discounts with drug companies. The people who get stuck paying the highest prices are those who can least afford it – people who don’t have prescription drug coverage.
PRESCRIPTION DRUG COVERAGE
A key issue with any health plan is what the insurance industry calls “adverse selection.” In health coverage, that means that if sick people tend to sign up for the plan more than healthy people do, the rates will go sky high. If a plan to extend prescription drug coverage contains financial barriers to signing up, then most of the people who sign up will be people with substantial drug costs, and the premium will be enormous.
Among the public programs which contain – or are considering adding – a drug benefit are the following:
Medicare. Al Gore is on the right track – to make a prescription drug benefit a part of Medicare, available to all Medicare recipients, with a very low premium or none at all, based on income.
The Bush approach would be a disaster – to offer a small subsidy to elderly individuals who choose to buy prescription drug coverage sold by insurance companies. Such a program would start out expensive for those who bought it, and adverse selection would quickly make it even more expensive. Only the very sick and the very wealthy would benefit.
The drug companies are opposing a real prescription drug benefit. One important reason is that it would force them to negotiate with a large and extremely powerful buyer – Medicare.
EPIC. This year the State Legislature greatly expanded New York’s Elderly Pharmaceutical Insurance Coverage (EPIC) program. Starting next January, income eligibility levels for EPIC will increase from $18,500 to $35,000 for individuals, and from $24,000 to $50,000 for married couples. In addition, co-payments will be reduced by 20 percent.
Family Health Plus. Last December the Legislature created the new Family Health Plus plan. It will provide free comprehensive health coverage – including prescription drugs – to adults with dependent children in families whose income is up to 150 percent of the poverty level (e.g., a family of four with income of up to $25,000) and to childless adults whose income is up to 100 percent of the poverty level (e.g., a family of two with income of up to $11,250).
This coverage should become available starting in 2001. It is modeled on New York’s highly successful Child Health Plus program, which covers children in households with incomes of up to 250 percent of the poverty level. The coverage, which includes prescription drugs, is free or costs a few dollars a month, based on income.
Universal Health Coverage. That is more important today than ever. My “N.Y. Health” bill would set up a health plan (including prescription drugs) that covers every New Yorker, with broad-based public financing.
PRESCRIPTION DRUG PRICES
People who don’t get their prescription drugs through a health plan ought to be able to get the same kind of discounts that are available to the HMOs. I’ve introduced a bill in Albany (A-11408) that would have the State Health Department negotiate with drug manufacturers on behalf of Medicaid, EPIC, any health insurer or health care provider that wants to join in, as well as individual consumers who choose to sign up. The discount – based on the bargaining clout of the large pool of customers represented – would be passed on directly to the consumer, and the drug store’s markup would be regulated.
The option of regulating drug company prices is not available to a state government. The Interstate Commerce clause in the U.S. Constitution means that only Congress can do that. But the negotiated discount proposal would produce almost the same benefit.
Richard N. Gottfried chairs the Assembly Committee on Health