It seems like ever since the introduction of Obamacare, healthcare expenses have been on a tear. That’s understandable, since those who were once uninsurable now have their healthcare costs subsidized by those who are healthy. That explains a significant part of the increase in healthcare premiums each year. But there’s another factor too, and that’s the increasing price of prescription drugs.
Over 3,400 prescription drugs have seen price hikes so far this year. And the average price increase has been 10.5%, or more than five times the government’s official inflation figures. Prices have grown so much for many drugs that people are forgoing getting medicine because they can’t afford the prices.
Part of the reason for those price hikes is the fact that drug makers have a captive market. Those who are reliant on drugs to survive can’t very well stop taking them, otherwise they’ll suffer. So companies squeeze those people as much as they can.
Companies are also responsible to shareholders, who are placing increasing pressure on these companies to increase earnings. Since increasing prices on existing drugs is often the only way to increase earnings, that’s what ends up happening.
Then there are intellectual property provisions that protect many drug companies from competition. Since they’re the only ones allowed to produce a particular drug, they can run the price up as much as they want. In fact, they have an incentive to raise prices as much as possible before patents expire so as to maximize their return on research and development.
Finally there’s the fact that significant amounts of prescriptions are purchased through insurance, Medicare, Medicaid, etc. With third party payers purchasing those prescriptions, many patients never seen the full costs of their medications. It’s left to those lacking prescription coverage or with subpar prescription coverage who end up bearing the full brunt of those price increases.
The solution, of course, isn’t to get government involved by mandating price ceilings. It’s to eliminate all the incentives to gouge consumers. Reducing the cost of the approval process, cracking down on patent filings intended to stifle competition and keep prices high, and cracking down on abuse of insurance coverage can all go a long way toward keeping prescription drug prices affordable.