Trump’s Plan To Peg Drug Prices to Foreign Countries Could Backfire

President Trump famously quipped during his run for a second term that he had “concepts of a plan” to fix health care. That plan finally came together last month — and congressional Republicans are eager to codify its concepts into law.Most of Mr. Trump’s “Great Healthcare Plan” is promising. It would make more medicines available over the counter, reduce out-of-pocket costs for insured patients, empower patients rather than insurance companies, and bring greater transparency to insurance pricing. Unfortunately, the plan has one big shortcoming — its embrace of “Most Favored Nation” drug pricing, which would effectively peg American drug prices to those in other countries. MFN amounts to importing foreign price controls. Codifying it would harm patients — and undermine the benefits the rest of the plan would deliver.Let’s take the good first. Making more medicines available over the counter will save patients money and time. No longer will they need to schedule a potentially costly doctor visit just to secure access to a well-understood, widely used, and safe drug.The potential returns are huge. As the economist Sam Pelzman has written, “every study of the matter shows substantial price reductions when drugs move to [over-the-counter].”Another pervasive problem the plan addresses is the relentless rise in health insurance costs — and the fact that, even with insurance, patients often have no idea what they’ll actually have to pay until the bill arrives.The plan confronts this problem by funding a long-neglected program to reduce cost-sharing — including deductibles, copays, and coinsurance — for certain enrollees.Right now, insurers have to cover those cost-sharing reduction subsidies on their own. They compensate for those additional expenses by raising premiums, especially for benchmark plans that determine the level of federal subsidies for all exchange plans. Relieving insurers of that obligation would reduce premiums for mid-level plans by roughly 10 percent. It would also save taxpayers more than $30 billion over 10 years, since lower premiums mean lower taxpayer subsidies. In addition, Mr. Trump’s plan calls for greater transparency around insurance plan benefits, pricing, and fees. Greater transparency would help patients shop around for the best-value coverage — and fuel market competition to lower prices.Taken together, the Great Healthcare Plan’s reforms reflect a strong commitment to fixing health care’s most frustrating quirks with practical, market-based solutions.The plan’s sole misstep is its provision to codify Most Favored Nation drug price controls into law.Prices for branded drugs tend to be lower in foreign countries because their governments forcibly cap them. Drug makers respond to those price controls by delaying entry into those markets — or declining to sell at all. As of October 2022, just 45 percent of medicines launched globally between 2012 and 2021 were available in Canada. Only 34 percent were available in Australia. Importing price controls from the likes of Canada and Australia, as the president’s Most Favored Nation proposal envisions, could similarly jeopardize patient access to new medicines in the United States.Price controls also reduce pharmaceutical companies’ revenue — and thus sap them of the resources needed to fund investments in research and development. One study by four University of Chicago economists estimated that applying Most Favored Nation pricing across Medicare and Medicaid would result in hundreds fewer new drugs reaching patients over the next decade.The Great Healthcare Plan gets the big picture right. It tackles some of the everyday frustrations patients face: high costs, confusing rules, and the outsized influence of middlemen. But Congress should be careful not to let one bad idea spoil the bunch. Lawmakers would be wise to build on the plan’s strongest reforms — and leave Most Favored Nation pricing behind.

Trump’s Plan To Peg Drug Prices to Foreign Countries Could Backfire

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