Politicians excel at creating low expectations so that they can do "better than expected." A Post article yesterday on a new report from the Center for Medicare and Medicaid Services fell completely for the lowered expectations trick. The article tells readers that drug prices increased less rapidly in 2006 than had been projected, in part because of the new Medicare drug benefit. The article presents this as a success of the benefit, although it does note that critics contend that Medicare could get lower prices if it negotiated directly with the drug industry. Well, I would love to hear the economic argument as to why Medicare, which would represent a much larger block of consumers than Canada, Australia, or the Veteran's Administration, would not be able to get the same or lower prices than they do. All three pay prices that average 30-50 percent less than the prices paid by the private insurers participating in Medicare Part D. In other words, it is not just critics of Part D that say that Medicare negotiate lower prices -- it is true (unless the Post has some new economic theory that it wants to share with readers). If the success of Part D is measured against the projected costs from two years ago, then the program is doing well. However, if it is measured against the drug prices paid by Canada or the VA, Part D is doing very poorly. If we had money to burn, maybe we wouldn't mind giving the drug industry an extra $30-$40 billion a year, but given that we have a budget deficit and are making cuts to many important programs, it is reasonable to ask whether the excess payments to the drug industry could go to better uses, even if the excess payments are somewhat lower than had originally been projected.
--Dean Baker
