Some ways to save money on Medicare without killing us

If they were really serious about saving money from Medicare, the Very Serious Schmucks could follow some of the suggestions in economist Dean Baker’s book, “The End of Loser Liberalism”. Sure, they’ll tick off Big Pharma. But they can’t be any less popular than the suggestion of raising the Medicare age, right?

For example, the nation will spend close to $300 billion in 2011 on prescription drugs. In the absence of government-enforced patent monopolies, the same drugs would cost around $30 billion, an amount that implies a transfer to the pharmaceutical industry of close to $270 billion a year, or about 1.8 percent of gross domestic product. It is close to 15 times current federal spending on the main government welfare program, Temporary Assistance for Needy Families (TANF), and it dwarfs the money at stake from a main goal of progressives: eliminating the Bush tax cuts for the wealthy.

Baker has lots of interesting ideas about how to cut Medicare costs. For one, he says we could simply give Medicare recipients vouchers to buy into the health insurance systems of other countries.

This big cost difference means that there are enormous potential savings from allowing Medicare beneficiaries to receive their care in Canada, Germany, or other wealthy countries rather than in the United States.

Figure 8-4 shows the potential benefit to Medicare beneficiaries, and dual beneficiaries of Medicare and Medicaid, if they got their care in Canada and split the savings with the government. The gains to beneficiaries would easily dwarf the average Social Security benefit in the decades ahead, according to the government‟s projections. Splitting the savings would both provide beneficiaries with a substantial boost to their retirement income and allow the government to address its deficit.

But I especially liked his plans for Big Pharma:

The importance of prescription drugs to our lives and health belies the fact that they are cheap. Few could not be profitably manufactured and distributed for less than $10 per prescription. The reason that we face moral dilemmas about paying $80,000 a year for a drug that may extend the life of an 80-year-old cancer patient by a few years is that we give drug companies patent monopolies that allow them to charge $80,000 a year. If the drugs were sold in a free market, we could avoid the dilemma and pay about $200 a year, making this a simple choice.

Of course, the research and testing necessary to bring a drug to market has enormous costs. But this expenditure has already been made when the drug comes on the market. The key goal of progressive policy should be to separate the payment for the research from the payment for the drug. If the payment for the research is made independent of the payment for the drug, then all drugs can be sold in a free market without patent monopolies, just as generic drugs are sold today.

The two main alternatives for financing research apart from the patent system are a prize system and direct public funding. Both would involve an expansion of public funding for biomedical research.102 Currently, the federal government spends $30 billion a year on biomedical research through the National Institutes of Health. For an additional $30 billion to $80 billion it could replace the research currently funded through the patent system. Even taking the higher figure, the government would soon recoup this cost through savings on drug expenses in Medicare, Medicaid, and other public health programs.

A prize system would effectively buy out patents from drug companies, with the price determined based on some measure of a new drug‟s effectiveness and importance. After buying the patent, the government would place it in the public domain, where any manufacturer could use it.

A system of direct public funding would pay for research in advance. Companies would contract with a government agency, for example, a much-expanded version of the National Institutes of Health. A limited number would receive large long-term contracts (e.g., lasting 10-12 years) to support research into specified areas. As the end of the contract period approached, companies could reapply for a contract based on their track record of achievement.

All the results, both preclinical and clinical, would be public, a transparency that should allow researchers to make informed assessments of the relative efficacy of different drugs and determine if some drugs are better for specific groups of individuals. The patents would be in the public domain, and so the drugs developed through this system would be sold at generic prices.

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