CBO Fact Checks Obama’s Cheaper Prescription Drug Promise

Rich MitchellNovember 4, 2010

Campaigning in Newport News, VA, Obama tells us that he will help us get cheaper prescription drugs.

“First, we’ll take on the drug and insurance companies and hold them accountable for the prices they charge and the harm they cause… And then we’ll tell the pharmaceutical companies, ‘Thanks but no thanks for overpriced drugs’. Drugs that cost twice as much here as they do in Europe and Canada and Mexico. We’ll let Medicare negotiate for lower prices. We’ll stop drug companies from blocking generic drugs that are just as effective and far less expensive. We’ll allow the safe reimportation of low-cost drugs from countries like Canada.”

Of course, what actually happened was Obama’s back room deal with Drug companies and lobbyists. You know, the “most transparent administration” kind of thing.

The Congressional Budget Office today published an innocuously-titled post on the CBO website. The entry, entitled “The Effect of the March Health Legislation on Prescription Drug Prices” is actually the direct publication of a letter addressed to Rep. Paul Ryan, the ranking Republican on the House Budget Committee.

The letter is in response to Ryan’s request to examine how provisions in two pieces of legislation affect prescription drug prices.

As you requested, this letter describes how the Congressional Budget Office (CBO) analyzed the effects on prescription drug prices of certain provisions of the Patient Protection and Affordable Care Act, or PPACA, (P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). As you requested, this letter describes how the Congressional Budget Office(CBO) analyzed the effects on prescription drug prices of certain provisions of the Patient Protection and Affordable Care Act, or PPACA, (P.L. 111-148) and theHealth Care and Education Reconciliation Act of 2010 (P.L. 111-152).

So the CBO went and analyzed the reality of health care reform and discovered that – shock – things may not be as rosy as Obama promised.

For drugs covered by Medicare’s drug benefit, CBO estimated that those provisions of the legislation would raise the prices paid by pharmacies less any rebates paid to insurers by manufacturers by about 1 percent, on average. That increase in prices would make federal costs for Medicare’s drug benefit and the costs faced by some beneficiaries slightly higher than they would be in the absence of those provisions

The letter went on to discuss how new drugs entering the market will be affected.

For newly introduced drugs purchased through Medicaid, CBO estimated that those provisions would raise the prices paid by pharmacies by about 4 percent, on average..

The CBO tries to balance out the negative findings by stating that the law constrains manufacturers’ ability to raise prices on drugs that are already on the market. Just how long will it be until Drug companies slightly re-formulate, re-brand and introduce as new every money-making drug they already have on the market?

It gets worse. As the administration has never understood that when they tax a company or put fees on manufacturers, those companies don’t actually pay those fees and/or taxes. They are all passed directly on to the consumers through higher prices. The CBO gets it:

The legislation also imposes an annual fee on manufacturers and importers of brand-name drugs. CBO expects that the fee will probably increase the prices of drugs purchased through Medicare and the prices of newly introduced drugs purchased through Medicaid and other federal programs..

The government take-over of health care is going to end up costing Americans much more. We’re seeing our premiums increase as insurance companies with slim profit margins (3% on average) are being forced to take on the highest risk patients and consumers are being forced into plans with far more coverage than they might have wanted to take on or can pay for.

This won’t slow progressives down, but it should put more powder in the magazine for Republicans as they seek to replace Obamacare with a more thoughtful and studied replacement.

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