Five reasons for concern about Democrats’ drug price control plan
Less well-known is a “small” provision that will impose the price controls utilized by other nations onto American manufacturers that produce lifesaving drugs.
This proposal allows government bureaucrats to impose price controls on up to 20 medicines in Medicare Part B and Part D. If the manufacturer does not accept this government-mandated price, the drug manufacturers are hit with a 95 percent excise tax on the total revenues of the drug. The proposal also includes an inflationary rebate penalty on every medicine in Medicare Part B and Part D.
In short, price controls are enforced by threats of confiscatory taxation.
While, at first, the tax is imposed only on a small group of medicines, it creates a new tax and regulatory structure that can be expanded to all cures and to the entire healthcare system and become a steppingstone toward socialized healthcare. In fact, Senate Democrats like Finance Committee Chairman Ron Wyden (D-Ore.) are already talking about expanding these policies into the commercial market.
Here are five reasons taxpayers should be concerned with this price control plan:
- Price controls will crush medical innovation. The coronavirus pandemic taught us that robust medical innovation is needed now more than ever. Manufacturers developed several highly effective COVID-19 vaccines at the fastest rate ever. Several weeks ago, Pfizer announced it had developed a pill that reduces the risk of hospitalization and death by 89 percent. This good news was only possible because the U.S. is the best in the world when it comes to developing innovative, lifesaving and life-preserving medicines. Imposing price controls and taxes will threaten this innovation.
- Price controls will result in arbitrary government prices on medicines. The federal government has no business dictating prices. There are many reasons the price of a product increases — whether that is through supply chain issues, labor shortages, or an increase in production cost. Or tax hikes by the government itself. While inflation is hitting American families hard, the cost of medicine is actually decreasing. Prescription drug costs have decreased by 0.7 percent on an annualized basis over the past 12 months, according to the Bureau of Labor Statistics. By comparison, the consumer price index has increased by 6.2 percent over the same period.
- Price controls will upend the market-based structure of Medicare Part D. Price control supporters falsely claim the proposal is about allowing the government to “negotiate” better prices. However, this plan will actually undermine existing negotiation which occurs with the private sector in Medicare Part D. Under this system, plans are free to compete based on the goal of maximizing access and minimizing coverage costs. This market-based structure has helped save taxpayers billions of dollars and granted patients access to medicines at low costs. Federal spending on Part D has come in 45 percent below projections after the first decade and is just 14 percent of total Medicare spending. Average monthly premiums in 2021 are just $31.47 and have been stable since 2011. Part D spending also helps keep costs in the rest of Medicare down — it has decreased hospital admissions by 8 percent, resulting in $1.5 billion in annual savings.
- Price controls will cost high-paying American jobs. Medical innovation, directly and indirectly, supports over 4 million jobs across the U.S and in every state, according to research by TEconomy Partners, LLC. Many of these jobs will be threatened by these new taxes and price controls. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers. The average annual wage of a pharmaceutical worker in 2017 was $126,587 more than double the average private-sector wage of $60,000.
- Price controls will move the U.S. a step closer to socialized healthcare. Progressives are pushing proposals to expand the power that government has over the healthcare system like “Medicare for All” and the public option. These proposals heavily rely on price controls on the healthcare system. Giving federal bureaucrats the ability to set prices in Medicare Part B and Part D would be a step down this dangerous path. Imposing price controls are a key tool in moving towards socialist healthcare because they allow the federal government to forcefully attempt to lower costs in a way that distorts the economically efficient behavior and natural incentives created by the free market. Sadly, if the left has its way, the government will control the entire healthcare system, an outcome that would also result in significant tax and spending increases and the loss of existing coverage for millions of Americans. Remember what socialism did to farming in Russia and Ukraine? The Democrat’s plan to impose price controls and a 95 percent excise tax on medicines will push the U.S. down this path, threaten high-paying manufacturing jobs, and reduce access to new lifesaving cures.
Grover Norquist is president of Americans for Tax Reform.
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