Government is a terrible allocator of resources and equally bad at interfering with free markets. A great example is the ham-handed way the Biden administration is trying to force down the price of prescription drugs. Right now, the Administration is working on a plan to lower drug prices in a way that will increase drug prices. Only the government could get something that wrong.
When the Biden administration passed the $1.2 trillion “Inflation Reduction Act,” a bill that actually increased inflation, they created a mechanism for the government to impose a price for selected prescription medicines covered under Medicare. Cloaked in the guise of price negotiations, the federal government has created a complex procedure to force companies to accept a drug’s price. This is a strong-arm tactic for the government to put out a take-it-or-leave-it proposition for drug companies, and it is not going to work.
The way the government tries to bully companies into accepting a price is complex. Ryan Ellis described the procedure used to get to a price in National Review on September 20, 2023, as “if a company does not accept the price control imposed on the drug, it will be forced to charge a 95 percent excise tax on the sale of that medicine (on everyone who buys it, not just seniors). That is not a typo. The alternative to a government price control (which is likely to result in drug scarcity and a lot less breakthrough drug research) is for the drug companies to sell their medicines with a 95 percent excise tax on top of the sales price.” The excise tax escalates over time to hit that 95 percent level to increase pressure over time on the company. Ellis points out that those who complain about high drug prices “wait until the government gets done negotiating for you.” The bottom line is that a government negotiation that is intended to lower drug prices likely will end up doubling the price of drugs that are already expensive.
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Another bad outcome for seniors of this scheme is that, in addition to the escalating excise tax, the drug will stop being covered by Medicare if the company can’t agree to a drug price. Kicking a drug out of the system of coverage for Medicare is intended to be a hammer to get the drug companies to agree to the price government bureaucrats have decided is the proper price for a drug.
The fact that unelected government officials at the Biden Centers for Medicare & Medicaid Services (CMS) will end up deciding on a price is a problem. Free markets are a far better way to get the prices of drugs correct. Although there is far too much federal money in the health care system today dedicated to the purchase of prescription drugs, the solution rolled out by the Biden Administration to address high drug prices is a solution worse than the problem. The drug tax will further distort market prices and cause economic pain and drug scarcity for America’s seniors.
The great irony is that progressives have demonized drug companies because they make big profits. Under the Biden scenario, the government would have the power to double the price of a drug, if a company can’t agree to a government mandated price, and keep the profits. This would allow the government to hike prices and seize cash in a way that would be criminal if done by a private company.
This socialist scheme sets a terrible precedent for those who treasure our country’s largely free markets system of economics. The Biden drug tax and price controls could spread to other areas of the economy if not stopped now. Any area of the economy that government bureaucrats deem as having prices too high might be subject to the threat of excise taxes. Banks that do not loan at a specific interest rate and car manufacturers that don’t sell enough electric vehicles might be the next target for an excise tax to change behavior. Progressives in Congress and in the White House can use the drug excise tax as a stalking horse to see how far they can push socialism on the American public.
The Biden excise tax on drugs is a big mistake. Thankfully we have an election coming up and seniors will be voting with this issue in mind. Hopefully electoral pressures stop this plan from ever being fully used to bully private enterprise.
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