Right and Wrong Ways to Address the Drug Cost Conundrum
Americans are gearing up for higher health care costs in 2017.
Average monthly insurance premiums for popular plans on Healthcare.gov, the major Obamacare exchange, are slated to rise by 25 percent. Some consumers will see their health insurance premiums double.
Eager to find a scapegoat, some politicians have pointed to drug companies, citing a string of high-profile price hikes to support their claims. The public has listened; more than six in ten Americans support "government action" to lower prescription drug prices, according to a recent Kaiser Family Foundation survey.
What these politicians ignore, though, is that prescription drugs account for less than a fifth of overall health care expenditures.
To get health care spending under control, Americans need to target the true driver of rising costs: chronic disease. Policies that effectively curb this epidemic will yield big health care savings in the long run and keep patients healthier at less cost to themselves.
Unfortunately, these numbers only are expected to get worse. By 2030, 80 percent of the U.S. population could suffer from at least one chronic condition. That high rate of illness will eat up $42 trillion in medical care spending and losses in employment productivity.
It doesn't have to be that way. With the right policy changes, Americans can reverse the tide of chronic disease.
First, Americans need better health insurance coverage. Although more Americans have insurance than ever before, a growing number can no longer afford the cost of insured care. That's because insurers are gouging patients at every opportunity.
For example, insurers are raising deductibles and other cost-sharing requirements. In 2010, the average employee-paid share of the premium plus the average deductible was around $4,600. In 2015, the average was more than $6,400.
In addition to these rising rates, patients also face higher out-of-pocket costs. Many insurers, for instance, now require their customers to shoulder as much as 50 percent of the cost of some prescription drugs.
Faced with these costs, far too many Americans with chronic conditions simply stop taking their prescriptions. One study found that when copayments went up just $4, an additional 6.2 percent of patients went off their meds.
Patients who abandon their prescriptions are far more likely to develop complications or end up in the hospital. In fact, studies estimate prescription non-adherence costs 125,000 lives each year. It's also costly for our health care system. Failure to adhere to prescribed regimens adds as much as $289 billion to the cost of care.
Second, Americans need health care policies that continue to foster a climate of innovation.
Over the next 15 years, it's estimated that new medicines could prevent 169 million cases of chronic disease and save 16 million lives.
These medicines would save money as well. Better treatments could save $418 billion a year -- $6 trillion in the next 15 years.
But these medicines will be developed only if America continues to encourage their development. Artificially pushing down prices would cause many pharmaceutical companies to lose the incentive necessary for new research and development.
Finally, Americans need to make an effort to adopt healthy behaviors. By increasing physical activity, reducing smoking, and eating better, Americans could help the health care system save $116 billion a year.
There's no question that Americans have felt the strain of rising health care costs. But by improving health coverage, fostering an environment that develops new medicines, and encouraging the adoption of healthy behaviors, policymakers could help to reduce the rate of chronic disease -- improving the physical and financial health of every American.