I hate to say I told you so but....

It seems to me that a pattern is developing here. We cover things (like medications, etc.), drug companies raise their prices and costs escalate. Pretty simple formula. If you are a drug company and someone else is paying for a patients drugs (like an insurance company or Medicare) then you could raise your prices without anyone getting too upset. In fact, it is pretty logical to think that you could raise your prices much easier in that scenario than if someone was paying for your product directly. Am I missing something here?

In 2005, Congress and the Bush Administration created Medicare "part D" which was a reasonable idea given the fact that medication costs were soaring and threatening to bankrupt many of the elderly. The problem at the time was that the law specifically forbids Medicare from negotiating in bulk with pharmaceutical companies thus limiting the overall negotiating pressure that Medicare could exert on prices. So guess what happens. In 2007 brand name drugs (non-generic medications) rose 2.5 times the rate of inflation and (here is the real shocker) there was an overall 7.4% increase in the wholesale price of brand name medications in 2007 compared with a still significant but smaller raise of 5.3 to 6.6% in the four years prior to Medicare part D implementation. In plain English that means that every year drug companies raise their prices an outrageous amount but since part D started this has allowed them to raise their prices more. Medicare is paying for them (except that in reality seniors still have to foot a large portion of the bill-and even more as price increases are implemented) so now the price increases go largely unnoticed. Now the cycle that I raised above becomes clear and you have to ask yourself a fundamental question, "who really benefits here?". I think that answer is fairly obvious but in case I confused you with this blog (since it is 2 am) let me just assure you there is only one winner in this scenario and that is the drug companies.

Prior to the Medicare bill being passed, the Bush administration formally estimated the 10 year cost for the bill to be somewhere around $350 billion. After the bill was passed, the Bush administration admitted the cost of the bill was miscalculated and would cost somewhere in the neighborhood of $750 billion which appears to be a fairly significant miscalculation but I am sure I am too critical. At the time I said I would bet a nickle that the cost would run over $1 trillion for the 10 year period and even though I do not want to be right in this prediction it looks like I probably will be. Oddly enough, it appears that patterns do repeat themselves and I now know what my parents meant when they said that "those who don't learn from mistakes are doomed to repeat them". When are we going to learn that covering things without regard to how much they cost will ultimately bankrupt us in the process.