Introduction
“Getting spending on Social Security, Medicare, and Medicaid ‘under control’ is a top priority for budgeteers. While the intention sounds reasonable, it’s important to note that spending on these programs is not currently out of control.”
Social Security Spending
According to the Congressional Budget Office (CBO), Social Security spending is projected to increase from approximately 5% to 6% of GDP between 2023 and 2053. This increase is primarily due to the aging population (see Figure 1). Although a 1-percentage-point increase may seem significant, it’s worth noting that defense spending fluctuated by 2 percentage points from 2000 to 2023.
Healthcare Program Spending
In contrast, spending on healthcare programs is expected to rise from 6.5% of GDP in 2023 to 10.1% in 2053. This substantial increase is attributed partly to population aging but primarily to the rising cost of healthcare. Interestingly, the United States spends twice as much on healthcare as the average for other OECD countries but achieves worse outcomes in key metrics such as infant mortality and obesity rates.
Addressing Out-of-Control Healthcare Costs
Considering the staggering healthcare costs, it’s crucial to take appropriate actions. The Inflation Reduction Act marked an important step in the right direction by granting Medicare the power to negotiate drug prices with pharmaceutical companies. This activity was previously explicitly prohibited for Medicare. Moreover, the legislation empowers the government with real leverage. Companies failing to comply will face a substantial excise tax or the option to withdraw all of their drugs from coverage under Medicare and Medicaid.
Negotiating Drug Prices: An Industry Battle
Introduction
The government’s plan to negotiate drug prices has triggered a fierce response from the pharmaceutical industry. Despite the precedents set by routine negotiations for other products and existing price negotiations by the Department of Veterans Affairs, the industry is determined to halt this drug pricing program.
Legal Battle
Industry Strategy
To achieve conflicting rulings and take the matter to the Supreme Court, the pharmaceutical industry has pursued multiple lawsuits with similar claims across different jurisdictions. Simultaneously, the U.S. Chamber of Commerce has sought an injunction in Ohio to suspend negotiations until their case is resolved.
Blocking Progress
Unfortunately, the industry’s efforts to obstruct this crucial step in controlling healthcare costs are succeeding for now.
