Hillary Clinton released her plan on pharmaceutical drugs yesterday. It’s the policy equivalent of setting a large pile of economics textbooks on fire and laughing manically.
“This is an astonishingly naïve approach,” Amitabh Chandra, a professor of public policy at Harvard University, told the New York Times about it.
Another way of putting it is, this is what you get when the Democratic frontrunner, under the gun because of a burgeoning FBI investigation into her handling of classified information, is trying to keep the left of her opponent, an avowed socialist.
Far from just allowing the federal government to implement implicit price controls through Medicare “negotiating,” this is as drastic as a full-on government takeover of the entire industry, but done in the way most likely to cause unfortunate unintended consequences.
The core plank in her plan, a $250 cap on amount individuals will be allowed to spend on drugs in out-of-pocket expenses, is a pure, direct price control that will, according to economics, lead directly to rationing.
Examine for a second what would happen if the government said people can only spend $10 a month on milk. Would the price of milk suddenly drop, allowing people to buy the same amount of milk under the cap? Obviously no – you would just be able to now purchase only $10 worth of milk.
With pharmaceutical drugs, the situation is complicated by the fact that health insurance pays for much of the price of the drug, with consumers only paying indirectly through premiums and copays.
But it doesn’t mean you can set an arbitrary cap on one of the parts of the system and expect the rest of it to stay intact. There is no free lunch.
Clinton also wants to set government mandates on what things drug companies may spend money on, including prior-restraint government approval of drug advertisements – paid for by the drug companies.
Forget for a second about the First Amendment, which has generally been ruled to prohibit this type of arrangment – it’s insane – “astonishingly naiive,” in the words of Chandra – for the government to set spending quotas on research and other things.
“Drug companies should not be allowed to reap excessive profits,” Clinton’s plan says. Another way of looking at “excessive profits” is as the market’s mechanism for conveying, “hey, this is a valuable activity to our society.” Typically that creates an incentive for other players to join that market, increasing competition and reducing price.
One of the scariest parts of Clinton’s plan is that under it, the government would “ensure American consumers are getting value for their drugs.”
“Clinton’s plan will ensure that new drugs coming on the market provide value and high quality to consumers, rather than adding to cost without improving treatments and outcomes.”
Because Uncle Sam is just who I trust to decide which drugs are useful to me! Can you imagine this being implemented? How would bureaucrats write the regulation defining which drugs provide enough “value” to come onto market? Is the goal to help patients, or keep costs low for entitlement programs that will be eating up the federal budget in coming decades?
Of course, Clinton also props up the charade about Medicare “negotiating” better prices on drugs. That’s also an implicit price control: unlike the consumers for private insurance, Medicare recipients can’t just switch to another provider. They’re locked in – giving the government price-setting power, not a seat at a bargaining table.
But that’s really the least of Hillary Clinton’s problems. Clearly, she is feeling the heat from a socialist, Bernie Sanders, besting her in recent polls. Apparently she decided her best response was to ignore economics and promise people unicorns in the form of a drug plan.