Trump and Obama promise to be terrible negotiators – Pacific Research Institute

Trump and Obama promise to be terrible negotiators

President Barack Obama and presidential hopeful Donald Trump don’t agree on much. But they’ve found common ground in pushing to upend the Medicare drug benefit.

At a rally days before his resounding victory in New Hampshire, Trump grumbled about government drug spending — and called for Medicare to take over the role of negotiating drug prices from private insurers. On Tuesday, President Obama released his new budget plan, which similarly calls for Medicare to negotiate prices on biologics and other specialty drugs.

Both men claim the move would save the government money. But it won’t deliver the savings Trump and Obama claim. It will instead raise costs for seniors, deny them access to drugs and dismantle the only portion of Medicare that has cost less than government projections.

The Medicare drug benefit, known as “Part D,” leverages the power of market competition to deliver prescription drug coverage to seniors. Private insurance plans compete with one another for seniors’ business, offering different premiums, deductibles and levels of coverage. Seniors can pick the plan that best suits their needs and the government subsidizes their premiums.

Today, nearly 40 million seniors are enrolled in Part D. On average, seniors can choose from 26 different drug plans. The competitive forces built into Part D have kept costs down. At an average of just $34 per month, premiums have been essentially flat since 2009 — and are about 50 percent below where the government expected them to be. It’s no wonder why more than nine in ten seniors are satisfied with the program.

The competitive structure has kept costs down for taxpayers, too. In fact, Part D costs are 45 percent below where the Congressional Budget Office initially predicted.

Not a single other government program can boast about results like this.

Consider the rest of Medicare. At its launch in 1965, Medicare’s Part A hospital insurance program was projected to cost just $9 billion by 1990. The actual cost? About $67 billion.

Part D has been a resounding success. It has expanded drug coverage and cost seniors and taxpayers alike far less than expected. But Obama and Trump have never let facts get in their way. That’s why they’re both dead-set on fundamentally changing the nature of the program.

The push from Obama and Trump is based on the notion that Washington bureaucrats could force drug prices down further than private insurers. But the nonpartisan Congressional Budget Office has researched this and found, time and again, that the government wouldn’t be able to deliver any savings. As stated in 2009, “[we] believe that granting the Secretary of HHS additional authority to negotiate for lower drug prices would have little, if any, effect on prices.”

If this fact were ever acknowledged by Obama and Trump, they would almost certainly point to the Veterans Affairs drug benefit as proof that their proposal would drive prices down. But the VA doesn’t negotiate prices — it dictates them. Drug makers who can’t comply with the VA’s demands — those who make new, pricey medications — are simply left off the program’s restrictive formulary. Indeed, of the 200 most popular drugs for seniors, the VA refuses to cover 37 of them. Medicare would have to rely on a similarly restrictive formulary to realize any cost savings.

Declining to pay for the drugs seniors most need would almost certainly end up costing taxpayers more money, since more effective medicines can avert healthcare spending by keeping patients out of the hospital.

President Obama has long fought for the federal government to have more control over our healthcare system. Redesigning Part D would help further that goal.

Trump is still new to public policy, so perhaps he’ll reevaluate Part D. After all, as a businessman, he should appreciate the lesson Part D offers. Competition, not government meddling, is the best way to improve services and drive down prices.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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