The Washington Post reported on the increase in nationwide drug spending in 2006 which was associated with the Medicare drug benefit. At one point the article notes complaints from Democrats about the excess insurance fees and drug costs due to the design of the program. It compares the 6 percent discount from retail prices negotiated by insurers in the program with the 18 percent discount obtained by Medicaid. It would have been useful to include a comparison with the Veteran's Administration, which average close to 40 percent. The implied savings for Medicare and its beneficiaries from such discounts would be almost $40 billion a year. The article also includes a comment from Richard Foster, Medicare's Chief Actuary, that the Medicare discounts are "mandated" rather than negotiated. It would have been useful to point out that the high retail prices are also the result of government intervention, in the form of government imposed patent monopolies. There is no one pushing a free market solution in this story.
--Dean Baker
