Trump’s Healthcare Plan: Right Diagnosis, Wrong Prescription

Donald Trump recently released a healthcare reform plan. If only he had spent as much time crafting it as he does his hair.

The GOP frontrunner is right that Obamacare has failed to fix what ails America’s healthcare system. As Trump put it, the Affordable Care Act has “tragically but predictably resulted in runaway costs, websites that don’t work, greater rationing of care, higher premiums, less competition and fewer choices.” He famously said that he wants to “repeal and replace with something terrific.”

But “terrific” his plan is not.

Take, for instance, his proposal to legalize the importation of “safe and dependable [prescription] drugs from overseas.”

Importing cheaper drugs from other countries may seem like a great way to reduce the cost of medicine for Americans. But there are important reasons why it’s currently prohibited.

Imported drugs aren’t safe or reliable. According to the World Health Organization, as much as 30 percent of the drugs sold on the international market are fake, compared to just 1 percent in the United States.

In Mexico, where many Americans are already crossing the border to buy cheaper drugs, law enforcement officials estimate that 25 percent of drugs sold are fake. Even officials in developed countries like Canada have said that they cannot guarantee the safety of their drugs for foreign consumers, like the more than 230 million Americans currently taking prescription drugs.

What’s more, drugs purchased online can come from anywhere. In recent years, China has become one of the biggest sources of fake medicine purchased via the Internet.

Counterfeit medicines can have deadly consequences. Eight years ago, a counterfeit version of the blood-thinner Heparin killed 81 people in the United States.

Importing drugs also won’t produce any significant savings. According to the Department of Health and Human Services, “Total savings to drug buyers from legalized commercial importation would be one to two percent of total drug spending.” The nonpartisan Congressional Budget Office calculated that drug importation would lower drug spending by “roughly 1 percent.” That’s a pittance.

Drug importation would also hurt innovation and lead to fewer breakthrough treatments.

Foreign medicines are usually cheaper because the government imposes strict price controls on them. Allowing American consumers to buy those drugs effectively imports those price controls into the United States.

Those artificially low prices will yield less cash for researching future cures.

That research is expensive. A study from Tufts University estimates that pharmaceutical companies spend over $2.5 billion on research and development for every new drug that makes it to market.

Trump also wants to squeeze drug companies by empowering the federal government to directly “negotiate” the prices of prescription drugs dispensed through the Medicare drug benefit, Part D.

He claims that this change would save billions of dollars — and that the feds have failed to enact it simply because drug-industry lobbyists have lawmakers on the string. Or as he said recently: “We don’t do it. Why? Because of the drug companies.”

But a buyer the size of the federal government doesn’t negotiate prices — it dictates them. And where the government already forcibly sets prices, shortages are the rule.

Consider the Veterans Health Administration, which refuses to buy drugs above a set price.

Veterans have significantly fewer treatment options available to them than Part D beneficiaries. Of the 200 most commonly prescribed drugs covered under Part D, the VA refuses to cover 37 of them.

Part D is the rare federal program that embraces market forces. Private insurers develop their own prescription drug plans offering different levels of coverage and cost-sharing, and seniors pick the one that suits their needs and budget — with some monetary assistance from the federal government.

Market competition has worked well for Part D. Between 2004 and 2013, the program’s costs came in 45 percent lower than initially projected.

In 2013, the Congressional Budget Office lowered Medicare’s cost projections by $137 billion over the following decade, attributing $104 billion of the decline to Part D. The program is responsible for 75 percent of Medicare’s savings — even though it represents just 10 percent of Medicare’s budget.

It’s good to see Donald Trump denouncing Obamacare as a costly, misguided mess. But his plan for replacing it is long on bluster — and short on good ideas.

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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