The NYT reports on a new practice among insurers to charge patients one third of the cost of the most expensive drugs. Since drug companies can charge more than $100,000 for some drugs, this means that patients with insurance can still end up paying tens of thousands of dollars a year for these drugs. In the context of this discussion, it would have been appropriate to note that these drugs only cost a few dollars to produce. In most cases, they could be profitably manufactured and sold for less than ten dollars a prescription, just like hundreds of generic drugs. The reason that these drugs sell for such high prices is that the government grants the drug companies a patent monopoly on drugs that essential for people's lives and health. The justification for this government imposed monopoly is that it is needed to provide incentives for research. However, with such incredible gaps between price and cost, and the resulting economic distortions, it would be reasonable to discuss more efficient mechanisms for financing drug research.
--Dean Baker
