Congress adjourned for its August recess without resolving popular concerns about the cost to older Americans of prescription drugs, but the issue remains red hot. Federal lawmakers only briefly suspended debates over drug costs, and political candidates are touting the matter as a key concern in the November elections.

But with all of this talk of a prescription drug crisis, how serious is the problem? And are politicians likely to make things better or worse with their proposals?

There's no doubt that medications can be expensive. Medical science can now alleviate the worst effects of many once-untreatable ailments — but treatment comes at a cost. According to the Tufts Center for the Study of Drug Development, the average cost to develop a new prescription drug is $802 million (it's worth mentioning that FDA regulations are partly to blame for the high bill). Not surprisingly, those millions get reflected in the price tag.

As high as drug prices are, though, they may be keeping overall medical costs down. The Tufts researchers also found that "the increased use of appropriate pharmaceutical therapies may help moderate or even reduce growth in the costliest component of the U.S. health care system."

But those bills have to be paid by somebody.

According to the Congressional Budget Office (CBO), as of 1999, a large majority of Americans had prescription drug coverage of some sort — only 25 percent paid for their prescriptions out-of-pocket. Coverage consisted largely of a mix of employer-sponsored retirement benefits, privately purchased policies and Medicaid.

That uncovered 25 percent is still worrisome, though. While an unknown percentage of older Americans are perfectly capable of footing their own bills, or have chosen to go it alone to assert their independence, others are certainly struggling — or even doing without. Many politicians certainly exaggerate the extent of the "prescription drug crisis," but some people are suffering.

This is where proposals to involve Medicare in prescription drug coverage come in. With many older Americans running up high bills at the drug store, the temptation to "do something" to alleviate the drain on their wallets — and win their votes — is overwhelming.

But Medicare is already a faltering system suffering from out-of-control costs. Raymond J. Keating of the Small Business Survival Committee (SBSC) points out that "when Medicare was established in the mid-1960s, costs for Medicare's hospital insurance were projected to be $9.1 billion in 1990. The actual costs in that year were more than seven times higher at $67.1 billion."

The federal government has tried to cut costs by arbitrarily cutting the amount it will pay for medical services — by 5.4 percent this year. Threatened with reimbursements that fall below the costs they incur in providing care, many doctors are opting out of Medicare entirely. While proposals for Medicare prescription drug coverage vary widely, they share a common characteristic: they're expensive. The CBO cautions, "adding a comprehensive prescription drug benefit would add significantly to the program's future budgetary pressures."

Those calculations don't take into account further costs that might result from adopting a drug benefit. For starters, if Medicare starts covering drugs, the private drug coverage that many retirees enjoy from their old employers becomes unnecessary. The Heritage Foundation's Robert E. Moffit warns, "Once employers realize that taxpayers are going to be forced to pay for the drug costs of retirees, they will have a powerful incentive to dump retirees from their private coverage."

Those retirees will then end up on the taxpayers' bill.

Worse, some of the proposals for Medicare coverage promise tiny copayments — or none at all. People who pay little out of pocket for what they consume have little incentive to control costs, and somebody will have to foot the growing bill.

Politicians will be tempted to reduce Medicare's already copious red ink by capping what the system will pay for drugs — an idea already put forward in Congress. But Massachusetts provided an early glimpse of that future this summer when it announced plans to slash Medicaid reimbursements to pharmacies by 11 percent. In response, three large drug store chains threatened to quit the system.

We'd be lucky if that happened nationally. If the federal government successfully imposed price caps on medicine, pharmaceutical companies would have little incentive or ability to spend hundreds of millions of dollars to develop the life-saving drugs of the future.

But that still leaves us with those senior citizens struggling for the dollars to purchase their medications. What is to be done about them?

Some of the more interesting solutions are coming from the drug companiesthemselves. Pfizer offers the Share Card program, which allows low-income seniors to buy a one-month supply of any of its drugs for a flat fee of $15. The Pharmaceutical and Research Manufacturers of America maintains aweb site,, where doctors can apply for low- and no-cost medications on behalf of their patients.

Beyond the drug companies, Keating of SBSC recommends making tax-freemedical savings accounts available to all health care consumers, and linking it with catastrophic insurance coverage.

Tom Miller of the Cato Institute calls for "comprehensive Medicarere structuring based on a true defined contribution system, vigorous competition between private plans and traditional Medicare on a level playing field, and deregulated benefits options that reward value-maximizing choices."

These proposals for reform and targeted support can't create a world in which research costs evaporate and medicine is freely available to anybody who needs it. But, unlike the schemes coming from Congress, they offercures that are better then the disease.

J.D. Tuccille is a Flagstaff-based Senior Editor of The Henry Hazlitt Foundation's Free-Market.Net (

— Arizona Daily Sun


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