Now Is the Time to Fight the Government Takeover of Health Care, Not Surrender to It
The Trump administration will soon issue an executive order on drug pricing and it is expected that this will include proposals tying the prices we pay for drugs to the prices in foreign, socialist countries.
This proposal, known as a most favored nation (MFN) clause or an International Pricing Index (IPI), would slow medical innovation, threaten American jobs, and undermine conservative opposition to Medicare-for-All.
President Trump has repeatedly railed against government-takeover health care policies like the Medicare-for-All plan pushed by Democrats in Congress and on the campaign trail. As recently as his 2020 State of the Union Address, the President promised “We will never let socialism destroy American health care.”
Trump is right to oppose socialized health care– these policies would result in trillion dollar a year tax increases, would destroy medical progress, and would end health care plans used by 180 million Americans.
However, rather than fighting these socialist policies, an MFN or IPI would adopt them. This will have disastrous consequences to the economy and health care system and to the broader effort to fight against the government takeover of health care.
An IPI or MFN Clause Will Reduce Access to Cures
The U.S. is the best in the world when it comes to developing innovative, lifesaving and life preserving medicines. Because of this, the U.S. is leading the way when it comes to developing COVID-19 vaccines, with several promising candidates entering the final stages of medical development.
In contrast, foreign countries have been freeloading off this American medical innovation for decades through crushing price controls and other market distorting government rules and regulations.
Adopting foreign price controls will result in the same negative outcomes to our health care system as those overseas—less medical innovation leading to fewer cures and health care shortages for American patients.
This is not hypothetical—of the 290 new medical substances that were launched worldwide between 2011 and 2018, Americans had access to 90 percent. By contrast, citizens in the United Kingdom had access to only 60 percent of these medicines, Japan had 50 percent, and Canada had just 44 percent.
Studies have also shown that price controls used in Europe delay new drugs coming to market by an average of 14 months.
Imposing Price Controls Threatens the Economy
Adopting price controls through an IPI or MFN clause will also harm the U.S. economy because of a decline in American R&D.
Medical innovation is enormously beneficial to workers and to the economy. Manufacturers invest over $100 billion in the U.S. economy every year, directly supporting over 800,000 jobs.
When indirect jobs are included, this innovation supports 4 million jobs and $1.1 trillion in total economic impact. Pharmaceutical jobs are also high paying – the average compensation is over $126,000 – more than double the $60,000 average compensation in the U.S.
Adopting Foreign Price Controls Does Nothing to Stop the “Freeloader” Problem
In addition to harming the economy and the health care system, an IPI or MFN does nothing to address the real problem and hold foreign countries accountable for price controls.
Supporters of the international pricing index have claimed the concept is a free market proposal that will incentivize manufacturers to negotiate better deals. Really? This theory is based on the idiotic assumption that American manufacturers were not fighting as hard as they could against foreign price controls in past years.
The administration has recognized the fact that adopting foreign pricing would damage American innovation, as noted in a report released in February 2018 by the president’s Council of Economic Advisors:
“If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”
Moving forward, we need policies that further encourage American innovation through tax and trade policies, like renegotiated trade deals and a competitive business tax system.
Imposing Drug Price Controls Paves the Way for Medicare-for-All
By adopting foreign drug price controls, an IPI or MFN would move us close to a government takeover of health care, which the left often calls “Medicare-for-All.” This would result in price controls on the entire health care system.
Price controls are anathema to conservatives because they utilize government power to forcefully lower costs in a way that distorts economically-efficient behavior and the natural incentives created by the free market.
In contrast, progressives embrace price controls as a way to expand government control over the free market.
If the left had their way, Medicare-for-All would be the law of the land, an outcome that would lead to significant middle-class tax increases at a time that the U.S. economy and American families and businesses across the country are struggling.
It would also lead to health care shortages, as has occurred in other nations that have socialized health care, like Canada and the United Kingdom. In the UK for instance, there was a shortage of 10,000 doctors and 43,000 nurses in 2019, with 9 in 10 managers in the National Health Service saying that too few doctors and nurses presented a danger to patients. At any one time, 4.5 million patients were waiting for hospitalization.
Imposing foreign price controls through an IPI or MFN clause is the wrong proposal for the administration to consider. It will harm the U.S. economy and the health care system, does nothing to hold foreign trading partners accountable, and paves the way for socialist Medicare-for-All.
Grover Norquist is President of Americans for Tax Reform