Start with the subsidies we give drug makers by paying high prices for drugs that are much cheaper abroad. Trump derided this “global freeloading,” saying, “It’s unfair, it’s ridiculous, and it’s not going to happen any longer.” But his plan attempts to fix the problem by making foreign prices higher — not by reducing prices in the U.S.
But even if the president somehow gets other countries to pay more for prescription drugs, it is Economics 101 that profit‐maximizing pharmaceutical companies won’t respond by selling their products more cheaply in the U.S. Instead, they’ll keep the extra money they extract from foreigners and continue gouging Americans as well.
There are ways to fix this problem. The U.S. could allow drug wholesalers to import generic drugs that have been approved in other developed countries when the price of U.S. generics spikes. It could allow Americans to import prescription drugs from abroad. It could prohibit drug makers from selling their products at higher prices in the U.S. than they do elsewhere. Trump’s plan could have included one or more of these ideas or it could have explained why they won’t work. It does neither.
What about pharmacy benefit managers? Although the president claimed to hate middlemen and promised that “they won’t be so rich anymore,” here, too, Trump’s plan offers no significant changes. It proposes to base copays by Medicare Part D enrollees on the discounted prices that pharmacy benefit managers pay, instead of the phony list prices the drug makers put out. It also proposes to cap Medicare beneficiaries’ total out‐of‐pocket drug costs. The plan gives no estimate of the savings the first proposal will generate, and the second proposal will cost Medicare more. Both ideas appear to be small potatoes anyway. In 2015, beneficiaries who exceeded the existing catastrophic threshold spent about $1.2 billion, a small fraction of the $110 billion that Medicare Part D shelled out in total for prescription drugs.