No, Zeke, You’re Not Paying For My Medicine | Galen Institute

THIS POST WAS ORIGINALLY POSTED NOVEMBER 2015

Zeke Emanuel is tired of paying for your expensive medicine.

Dr. Emanuel, who served in a senior position at the Office of Management and Budget where he contributed to the recurring nightmare known as ObamaCare, recently complained in the New York Times [“I Am Paying For Your Expensive Medicine”] that his insurance rates are high because the medicines you’re taking cost too much.

“We all need to care about not only our own health care bills but also those of our neighbors,” he writes.  And by caring about your neighbors’ bills, he means finding a way to avoid them.

What evidently provoked Dr. Emanuel to fret about your medical bills was something called a PCSK9 inhibitor, a recently approved class of biologics that, according to a preliminary study, reduces the risk of heart disease and stroke by half.

YOU may not know it, but you could be on the hook to pay at least $124 this year for a drug you probably don’t take.

The drug is a new class of cholesterol-lowering agents called PCSK9 inhibitors. Its cost and how we are paying for it illustrate why we all need to care about not only our own health care bills but also those of our neighbors. And it helps focus the debate about drug prices on two questions: What is the value delivered by the drug, and can that be linked to its price? And how should such value-based prices be implemented?

In July, the Food and Drug Administration approved the first of two new PCSK9 inhibitors that lower the bad type of cholesterol, LDL. Studies suggest that they can reduce it by up to 60 percent, compared with a placebo, and reduce it up to 36 percent more than statins and a drug called ezetimibe. However, there are no definitive data on how much these drugs actually reduce heart attacks, strokes and deaths from heart disease. 

Ethical concerns aside (should government determine how much an additional “quality-year” of life (QUALY) is worth?), government policies have so distorted medical prices as to render the sorts of calculations Emanuel favors suspect.  Before considering whether to import England’s algorithm for determining value, policymakers would do well to reflect on the wreckage that previous government forays into the health care marketplace have wrought.

The government, for example, imposes price controls in the VA system.  It also operates aMedicaid “rebate” program, which requires drug makers to mark down the price of medicines in that burgeoning program.  It mandates similar price concessions to a growing list of clinics and hospitals.  Manufacturers also must slash prices by 50 percent for Medicare beneficiaries who have fallen into the drug benefit’s “donut hole.”

When the government requires manufacturers to provide steep discounts to such a broad swath of the market, they predictably charge higher prices to everyone else.

Emanuel doesn’t just overlook the distorting effect government actions have had on drug prices, but he also fails to see how government has deformed health insurance markets.  Federal programs have long divorced premiums from risk.  ObamaCare has extended that practice into the individual and small group markets, creating a program in which people who wait until they are sick to buy insurance pay the same rates as those who maintained continuous coverage when they were healthy.

It has thus made insurance a good deal for people who have pre-existing medical conditions and a bad deal for people who don’t.   That is a major reason why the vast majority of uninsured people in reasonably good health who don’t qualify for government premium and cost-sharing subsidies have so far chosen to remain uninsured.  It also helps explain how insurance companies have managed to lose money under the program, even after pocketing billions in corporate welfare payments.

The accretion of government intrusions into the health care marketplace has distorted medical prices beyond recognition.  Good intentions have motivated every intervention, each of which has engendered a new round of problems that, in turn, have inspired further well-meaning interventions.  The result is a costly and inefficient system where prices are unhinged from value.

Government is bad at paying for value.  For consumers, it is a core competency.  Instead of smoldering over other people’s medical bills, Emanuel would do well to devote his considerable intellect to scraping away regulatory barnacles that prevent price discovery.  Instead of more government, we need a health care system that functions like the rest of the economy where, as Emanuel put it, “individuals determine value.”

Doug Badger is a retired White House and U.S. Senate policy adviser and a Senior Fellow at the Galen Institute.

No, Zeke, You’re Not Paying For My Medicine | Galen Institute