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Healthcare Reform Must Not Empower Big Government – It Must Harness the Innovation, Quality and Price Competition of the Marketplace

By George LandrithRedState

Before the passage of ObamaCare, we were told that it would solve all the problems with high costs and accessibility of healthcare. We were repeatedly told that Americans would save thousands of dollars every year. Of course, none of the promised benefits materialized. Now many of the same people who misled us about ObamaCare are now back trying to sell us on other “solutions.”

Speaker Nancy Pelosi — who laughably told us we had to pass ObamaCare to find out what’s in it — is now peddling a new drug plan claiming it will lower costs. However, Pelosi’s plan would supposedly lower costs by imposing up to a 95 percent excise tax on hundreds of prescription medicines. Imposing confiscatory taxes is no way to lower costs, or to encourage innovation. But it is a huge stride towards socialized healthcare which is her real goal. In the end, this plan leaves consumers and patients at the mercy of government bureaucrats. Imagine when you are sick having an experience like at the Department of Motor Vehicles – long lines, lots of waiting, and poor service. 

Pelosi’s plan isn’t even constitutional because it imposes a confiscatory retroactive tax on the total sales of a drug, not the profits, but the gross receipts. To escape this ruinous and confiscatory tax, Pelosi’s plan allows drug companies to agree to, and accept, government set prices. This is so abusive that it makes the mob’s protection money schemes look legitimate. 

The biggest losers of Pelosi’s plan will be the Americans who will suffer and die because the medicines that could have been developed to cure their condition will not exist or will not have been developed. So as Americans age and need cures for cancer, Alzheimer’s, diabetes, etc, those cures won’t exist and it will be Nancy Pelosi’s fault. These policies have long term consequences. If she were serious about improving things, she would unleash the power of the market and competition. Instead, she empowers government at the expense of Americans.

But there is no shortage of bad ideas on Capitol Hill, masquerading as solutions. For example, Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) have proposed legislation that would change Medicare Part D prescription drug rebates to penalize drugs whose prices rise faster than the rate of inflation. It is strange that the Grassley/Wyden proposal targets Part D because it is one of the few government health care programs to successfully foster price-based productivity increases. 

In most parts of the economy, over time, prices go down and quality goes up, due to increases in productivity. The underlying mechanism driving this is competition. One sign of how successful Part D has been in wielding competition is that in its first decade of existence, it cost over 40% less than what the Congressional Budget Office estimated it would. This is an historical achievement.

At the very least, the Grassley/Wyden proposal will increase the cost of participating in the market, both in terms of compliance costs, and in the changed incentives and their inevitable unintended consequences. For example, a company that requires more revenue to economically survive might raise prices slightly on all its products, instead of steeply on just one. How this all plays out is impossible to predict. What can be said for certain is the market’s “logic” would now be less about providing the most value for customers at the lowest price, and now more about the political ramifications of pricing decisions.

The Grassley/Wyden proposal exemplifies the folly of centrally-designed price controls and thus, should be cast in the dustbin of bad socialist ideas. 

For example, Senator Bill Cassidy (R-La.) is a medical doctor and has been advocating for market-based approaches to healthcare reform. 

There are some good ideas out there. Senators Bill Cassidy (R-La), Steve Daines (R-Mont.), James Lankford (R-Okla.) and Ben Cardin (D-Md.) are sponsoring an amendment to the horribly misguided Grassley/Wyden bill. They suggest creating new tiers of drugs for generics and biosimilars, rather than lumping them in with brandname drugs. This is an idea that makes a lot of sense and it would benefit consumers. But it should be a stand alone bill. The Grassley/Wyden bill is bad enough that such amendments do not actually cure its horrible defects. But the underlying idea of this amendment, as stand alone legislation, would have a lot of merit.  The Administration has the authority to do this now under existing statutory authority — it should do so. 

The problem with healthcare and medical reforms in Washington is that there is too much blind faith in the ability of big-government to simply wave a wand and somehow magically lower prices. Rather than the promised benefits, what we actually receive are terribly high unintended consequences. We saw this with the ObamaCare fiasco.  Policy makers should place their confidence in the marketplace to incentivize innovation and high quality products at competitive prices. 


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