If people want some insight into the Donald Trump phenomenon, this issue might make for a good starting point. Trump’s positions on health care have not exactly hewn to Republican or conservative orthodoxy, to be sure, but the polling frontrunner has refused to back down from them. Last night in New Hampshire, Trump stuck to his government-as-arbiter guns, demanding that Medicare leverage its market presence to force pharmaceutical companies to negotiate on price — an option expressly prohibited in the 2003 Plan D program passed by Republicans.
Note how the Associated Press frames this, too:
Trump told an enthusiastic crowd of about 1,000 people packed into a high school gymnasium Monday night in Farmington, N.H., that Medicare could “save $300 billion” a year by getting discounts as the biggest buyer of prescription drugs.
Said Trump: “We don’t do it. Why? Because of the drug companies.”
Companies generally can set the prices for approved drugs because the US government doesn’t regulate medicine prices, as other countries do. The powerful pharmaceutical lobby has repeatedly fended off such proposals that would cut into profits.
Conservative and Republican doctrine on this is that Medicare’s pressure will produce irrational results in a market where consumers already have aggregate power to push prices downward. Ten years ago, Heritage senior fellow Dr. Robert Moffit offered a good overview of this doctrine and an explanation of why consumers should worry about Medicare’s intervention:
When the program started, Medicare officials projected that the average monthly premium would be $37; in fact, it declined to less than $24. Private health plans are securing serious discounts, benefits are generous (especially for poor seniors), and eight out of 10 seniors say they’re satisfied. Private-sector negotiators are doing a good job, and the nonpartisan Congressional Budget Office doesn’t think the Medicare bureaucracy would do better.
Still, some members of Congress say that with 38 million beneficiaries enrolled, the government’s market “clout” as a pharmacy benefit manager would dwarf the private-sector managers already serving Medicare beneficiaries. That’s not the case, however. In 2004 alone, Advance PCS covered 75 million people; Medco Health Solutions covered 65 million, and Express Scripts covered 57 million.
There is, however, one big difference between the Medicare bureaucracy and the private-sector benefit managers: Medicare has no experience managing outpatient drug benefits. Moreover, when government officials do “negotiate” drug prices, it almost invariably means setting a price below the market level, which reduces the supply of drugs or restricts the choice of drugs patients can have. Medicaid routinely restricts access to pharmaceuticals, and the Veterans Administration, often touted as a model for federal drug pricing, also has a restrictive list of approved drugs.
In a recent study for the National Bureau of Economic Research, Joseph Golec and John Vernon, professors of economics at the University of Connecticut, estimate that European drug price controls over the last 19 years resulted in a loss of about $5 billion in forgone R&D spending and 46 fewer medicines. They project that adoption of similar policies in the United States, the world’s major producer of pharmaceuticals, would likewise result in much greater losses of R&D investment and new medicines.
On top of this, Trump’s claims are wildly exaggerated. In 2014, Medicare spent $121.5 billion on Part D prescriptions, and $21.5 billion on Part B (hospitalization coverage) for a total of $143 billion — less than half of what Trump claims he will save. The entire pharmaceutical industry’s sales in the US in 2014 was $377 billion. Trump appears to have little insight into the issue he’s flogging.
However, policy and data are perhaps no longer relevant for most voters. They see institutions as corrupt, and in need of serious and dramatic correctives. The deal on Medicare prescription coverage fits that worldview to a T, putting Big Pharma in the role of beneficiary of governmental inaction, forcing consumers to pay higher and higher prices for drugs. Trump promises to cut through the Gordian policy knots to deliver for the common man, a classic populist strategy, and it works in part because it seems counterintuitive that a major payer of drugs should have no bargaining power at all on price. Why not save a few billion a year, even if it doesn’t amount to $300 billion, especially if it means sticking it to Big Pharma? And who else has the power to fight for the common man, except someone at the top of an even bigger government?
Populism never relies on small-government conservatism. It relies on having the right person in charge of an activist government, benefiting the right people and plaguing all others. And thanks to a failure of institutions to address rising dissatisfaction and resentment (or even to discuss them), populism has become the fashion in both parties.
The super-PAC supporting Ted Cruz attempts to hit Trump from the conservative angle on government-run health care. It’s a good ad for conservatives who care about policy, but …