Health and Disability

Whilst decrying rapid increases in drug spending and prices, elected officials have actually made it increasingly difficult for insurers to do anything about it. As payers, insurers are the only parties in the health care system who have both the means and the incentive to counter drug firms’ pricing power. For example, insurers have aggressively steered patients from branded to generic drugs, saving billions in the process. However, much of the growth in drug spending is attributable to new drugs that do not yet face generic competition.

In normal markets, monopolies face constraints on their pricing power. The higher they set the price, the less they sell. Insurers want to present drug companies with the same trade off, but as I describe here, numerous policies enacted in the name of facilitating patient access limit insurers’ ability to do so.