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Bioethics Forum Essay

Trumping Drug Costs

I usually have trouble finding a good word to say for President Trump’s policy ventures, but his aim to better control out-of-pocket drug costs is worth support. Distressingly, but unsurprisingly, it does not include giving government the needed power to bargain with industry for what it will pay for drug coverage. Nor will it allow import drugs. There are four main aims: improved competition, better negotiations, incentives for lower prices, and lowering out of pocket expenses. It is easy to see that each of those aims will require a role for Congress and entail much arguing. Each appears incremental, not revolutionary, leaving it difficult to guess how successful the aims will be.

Out-of-pocket drug costs have an important place in the overall plan. It has become a major burden for millions of the sick, growing heavier all the time. Almost all of us will require drugs at some point to treat us when sick or to help us stay well. For many people, medications are the difference between life and death. The number of people who depend on costly medications run in the millions—and it is hardly surprising that the pharmaceutical industry is famously profitable and no less so for the money it spends lobbying Congress. Almost 300 drugs saw their costs rise 130 times faster than inflation from 2014 and 2015.

Two features of the out-of-pocket drug cost problem stand out.  One of them is the financial impact on the elderly, costs borne as part of the Medicare program and commercial supplemental plans. The other is the drain on retirement income, heavily but not exclusively borne by Social Security.   

We have heard much about the super-high costs of many new drugs, running into the billions collectively and hundreds of thousands for some individually. Those costs are beyond the means of all but the very rich. Much less obvious are the more routine out-of-pocket costs and what I think of as their twin, deductibles, no less pervasive. The former takes money directly from us for health care. Deductibles come into play when our insurance coverage sets a fixed dollar amount to be paid out of pocket.

Medicare pays for the medical care of 59 million people aged 65 and older and for younger people with disabilities. It does not cover long-term care, dental services, and other auxiliary health needs. Half of all Medicare recipients, a Kaiser Family Foundation report found, have per capita income of less than $ 26,200.

Here are some other pertinent Kaiser figures:

  • In 2013, Medicare beneficiaries spent an average of 41% of their Social Security income on out-of-pocket health care costs.
  • By 2030, beneficiaries will see that figure increase to 50%.
  • For Medicare beneficiaries in fair-to-poor health, average spending on out-of-pocket health care costs was 47% of Social Security income in 2013 and it is projected to rise to 57% in 2030.
  • Medicare beneficiaries with functional impairments spend the highest share of their Social Security income on out-of-pocket health care costs. That share was 54% in 2013 and it is projected to rise of 64% in 2030.

I take five drugs for assorted chronic conditions, by no means a large number for someone my age, 87. Many of my geriatric peers take 10 to 20 drugs. An AARP report found that for those who take 4.5 drugs, the annual cost was $26,000 in 2015, three times the cost 10 years earlier.

High-deductible health plans can negatively influence patient treatments. While not focused only on the elderly there is some good evidence that high deductibles can lead patients to defer necessary treatments. Copayments are well known to deter many patients from getting drug prescriptions filled or to take less than the amount prescribed to save on their use.

A damaging feature of out-of-pocket costs for the elderly is that, unless one is financially well off, those costs have to be paid for with monthly Social Security income, which, in 2013, was only an average of $13,375. Older Medicare beneficiaries spend the largest share of their Social Security income on health care costs.

  • In 2013, Medicare beneficiaries over the age of 85 spent an average of 74% of their Social Security income on out-of-pocket expenses.
  • For females over the age of 85, that figure was 83%. Women live longer than men and are more likely to need greater financial security to pay for out-of-pocket health care expenses.

Most distressingly, two sets of figures cast a shadow over the future. Retirement savings, which should be rising, have remained stagnant since 2000. Most families, including those close to retirement, have little savings, some $17,000 in 2013, down from $36,000 in 2007. With many families already suffering bankruptcies from out-of-pocket health care costs, a real disaster could emerge in a few decades.

Many Americans of a liberal bent, myself included, have looked with longing for many years to Europe and its universal health care systems. While there are variations, their common denominator is that the government is the organizer and controller of health care. The most important variant among the European countries is whether, and to what extent, they accept and make significant use of private insurance sector for many kinds of care. Even where there is private insurance, it is tightly regulated by the government.

For the most part, in earlier times European health systems did not require significant out-of-pocket costs or deductibles. American market advocates have regularly taken delight in pointing out two negative features of the U.K.’s National Health System: long waiting time for many forms of care and cancer cures lower than in the U.S. But otherwise those countries have better life expectancies and other health outcomes, and at a lower cost, than we do.

Without much notice here, that glowing picture has changed, a shift that developed between 2000 and 2010 and was intensified by the global recession. At least 10 European countries, including the U.K., Germany, and France, and joined by Japan, have introduced “cost-sharing” policies. (Cost sharing is a euphemistic term suggesting collegiality between the sick and government, but it refers to copayments and deductibles.) Most of these countries place the highest cost-sharing burden on the well off, protecting the poor. While the European recession was one reason for introducing cost sharing, the dominant force was the triad of societal aging, new medical technologies, and rising drug costs.

The upshot of the European trends for me is that those of us who have longed for a single-payer health care plan–along with Elizabeth Warren and Bernie Sanders—can no longer simply blame our troubled American marriage of government and the market for our problems. The irony of the Europeans taking up our tactics of cost sharing should not go unnoticed. We got there first. The combination of increasingly longer lives and technological advances have all of us in their grip.

I will follow up this article shortly with an examination of universal health care prospects, often invoked as the best solution to drug costs and all other health care problems.

Daniel Callahan is cofounder and President Emeritus of the Hastings Center and the author of Medicine and The Market: Equity v Choice (Johns Hopkins University Press, 2006).

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