Reading Elizabeth Warren’s Healthcare Plan, Part 2

I took a week off to celebrate Christmas with my family, and now I’m back for my assessment of the extensive quotes from Elizabeth Warren’s website that I shared in Part 1.

Reading through it all, I think it can naturally divide into three sections:

  1. General details that will apply regardless of how close she gets to achieving Medicare for All (M4A)
  2. Her plan to transition to M4A
  3. Her vision of what M4A would look like if it is achieved

In each section, I will not rehash every single detail she gives, but I will mention the things that I believe are the most relevant to the performance of the healthcare system as she would have it.

This was originally going to just be a two-part series, but shorter posts are less daunting to read, so I’ll tackle this in bite-size chunks. Therefore, I’ll start working my way through the main categories I’ve identified in Section 1, starting with . . .

Pharmaceutical Prices

She is going to crack down hard on medication prices. How? By getting Medicare to aggressively negotiate for all drug prices. The bargaining power of Medicare will increase as it covers more people, so this will become more effective at lowering prices over time. Eventually Medicare will not allow prices more than 110% of average international market prices, and there will be no artificial price floor for how low those prices can end up. If drug companies play hardball and refuse to agree to the prices Medicare is demanding, she will resort to regulatory mechanisms to bypass drug patents and require re-licensing of those drugs. Or if all that fails, she will just have HHS manufacture the drug itself if it finds a way to legally do so. She also promises to incentivize pharmaceutical companies to develop new drugs that we need (antibiotics, cancer drugs, vaccines).

My assessment: I agree that Medicare should negotiate for drug prices just like other insurers do all over the world. But I have concerns with her contingency plans if those negotiations have unsatisfactory results. If the prices are too high, that’s either because the pharmaceutical company has the power in the negotiation because they have a patent-induced monopoly (which we give them on purpose so they can reap the benefits of their investments), or it’s from a failure in the generic market.

If she doesn’t like patents, she should shorten them or change them in some other way. Don’t just override them–all that will do is create significant uncertainty about the potential rewards for major research investments, which will reduce how much pharmaceutical companies will be willing to invest, especially in certain areas, and it will distort the market, probably in undesirable ways.

If there’s a failure in the generic market, maybe she should find out what’s causing that failure. Business strategy history shows a million times over that a market that’s earning large profits will draw new entrants like crazy, all of whom will try to earn some of that profit, which stimulates competition and eventually lowers prices and profits to reasonable levels. I firmly believe we need to understand very clearly the causes of market failures we observe before we intervene on them.

I’m also skeptical that she can effectively incentivize pharmaceutical companies to invest in the “drugs we need” when everything else she’s doing is dis-incentivizing pharmaceutical company investments. Again, if drugs that many patients need are not being researched, there must be a reason drug companies are not going after such large potential markets, and I’d hesitate to treat the symptom by offering subsidies for developing specific types of drugs/vaccines before I understand why they’re not already investing in them.

My recommendation: Stick with the plan to have Medicare negotiate like it should be doing already, but don’t impose some artificial price ceiling. Definitely get rid of any artificial price floor though. Take a hard look at patents to see if they should be adjusted. Don’t create uncertainty by threatening to undermine patents and licenses. Have some smart people figure out what’s going on in generic drug markets and solve those problems with smart policies rather than creating a government-run pharmaceutical company. And find out why pharmaceutical companies are not developing as many “drugs we need” as you think they should. If it’s simply because the potential reward is too low, go ahead and offer subsidies to cover part of their investment.

Next Tuesday, I’l look at some of the other main categories of things she talks about in Section 1.

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