It’s a Drug-Market House of Illusions
By Steve Hirsch
I’ve got a name for America’s prescription-drug-market: The Drug-Market House Of Illusions. It’s not some cheap house of mirrors like the ones at local fairs where carnival barkers charge two bucks to get in. No, the Drug-Market House Of Illusions is a trillion-dollar enterprise, starring illusionists that make Penn & Teller look like nine-year-old amateurs performing stupid card-tricks that they learned on YouTube.
The illusionists aren’t just anybody. Star performers include the Food & Drug Administration, Congress, the drug industry (America’s biggest spender on lobbying), and the insurance industry (America’s second biggest spender on lobbying.) Illusions are great fun and these guys, well, they’re just so great. Their illusions are terrific, brilliantly designed to prevent Americans from saving on medications by buying from overseas pharmacies.
Okay, so we’re at the Drug-Market House Of Illusions. Welcome. Follow me through the front door and to the left into the FDA Fun Room. See that big-screen TV on the wall, the one displaying a statement from the FDA? This statement really appears on the FDA’s website. It says it’s illegal for you to save money by re-importing a medicine from a foreign pharmacy, but get this. It’s permissible if the pharmacy doesn’t tell anyone. Really. The FDA doesn’t mind re-importation of a drug as long as there’s no “promotion of the drug to U.S. residents.”
Either the illusion is that it’s legal to re-import unless you advertise, or the illusion is that it’s illegal to re-import unless you don’t advertise. Awesome! I mean, you can study this FDA statement for years, and still you can’t tell what’s legal and what isn’t, what’s illusion and what’s reality. It’s like at the local fair, when you stare into a mirror that reflects into another mirror that reflects into another. Except after a while, I can figure out the mirrors at the carnival, but try as I might, I’ve got no idea if re-importation is legal. It’s such a mind bender, my brain is about to hallucinate!
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Boy, oh boy, I hope you enjoyed the FDA Fun Room. Let’s go down the hall and see another room inside The Drug-Market House Of Illusions. Oh, and be careful not to trip. The floors are crooked in here. In fact, everything is crooked in here.
Okay, step right in. This is the insurance industry’s Room Of The Royal Ripoff. See that guy sitting at the end of the conference table chewing on a smelly cigar? His name is Albert Capone, but the fact that his name sounds like the Al Capone who ran the Chicago mob is just a coincidence. What’s that you said, Albert?
“I’m a bigshot insurance CEO, and speaking on behalf of all my fellow bigshot insurance CEOs, we hate high prescription-drug prices.”
Wow, Mr. Capone is really great at saying that. Did you notice how he looked you straight in the face with such a serious expression, and he didn’t even have to take that cigar out of his mouth while talking? I bet you’re happy to hear that Mr. Capone and all the insurance-company CEOs hate the high cost of medicine. I mean, high medicine prices sure are tough on us American consumers, so it sure is comforting to know that the insurance guys are on our side.
Hey, look over there on the other end of the conference table. It’s pitch black over there on the other side, but it looks like there’s another guy sitting at the table. Let’s look closer. Can you see him now? Yeah? He’s a big shot in the pharmaceutical industry. Nice guy. His name is Ollie Opioids, but the fact that he sells drugs and his last name is Opioids is just a coincidence. You must be wondering why he’s here. What’s that you said, Ollie?
“Oh, nothing. All I said is, is like, I’m just here. It’s far out, but no reason.”
You’ll have to forgive Ollie. It’s just, he’s very rich and powerful, but he’s a shy kind of a guy. Ollie prefers that other people mind their own business while he toils away in the drug industry. Hey, can you see below the table? No? Well, bend over just a little and look under. See that? Yeah, Ollie Opioids, our friendly drug company guy, he’s passing money under the table into the lap of Mr. Capone, the insurance guy who says he hates high medicine prices.
These are kickbacks that the drug companies pay to the insurance companies. You should see the article that Avik Roy wrote in Forbes about the funny way that drug companies say thank you to insurers for helping in an illusion that rips off American consumers.
I bet you didn’t know about the kickbacks. It works like this. When a consumer with insurance fills his prescription at the drug store, the pharmacist says it costs $100, but not to worry. The consumer’s insurer is paying $60 of that, and the consumer only has to pay $40. The consumer nods while thinking good thoughts about his generous insurer. But the insurer’s generosity is an illusion, because the drug company could have charged $60, but they instead made a deal with the insurance company to charge $100, and kick back $20 to the insurer, thus splitting the extra $40 with the insurer.
It’s a win-win. The drug company gets an extra $20, and the insurance company gets $20 they wouldn’t have gotten. Win-wins are what everyone loves. Everyone wins and no one loses. Except the consumer. It’s really a win-win-lose, because he pays the $40. But hey, it’s The Drug-Market House Of Illusions we’re talking about and the consumer feels good under the illusion that his insurer has done him a solid. Also because it’s The Drug-Market House Of Illusions we’re talking about, the drug and insurance companies don’t use a wormy-sounding word like kickbacks. They metamorphose it into a prettier, almost butterfly-like word: rebates.
What can be cooler sounding than rebates? Coupons? Yeah, those are cool too.
How do you like the insurance industry’s Room Of The Royal Ripoff so far? Nice, huh? Well, before we move on to the next room in The Drug-Market House Of Illusions, let’s hear a little more from Albert Capone. What’s that, Albert?
“Me and my fellow insurance executives, all of us, we always, always, always negotiate to keep healthcare costs low. And you wanna know why? It’s cause we’re the payers, the ones paying most of the costs. Not just medications. It’s us, the insurance guys, we’re the ones paying most of America’s healthcare costs.”
Oh, look! Mr. Capone looks so earnest, doesn’t he? You’ve got to love him. He’s really quite special when it comes to illusions. Hey, I bet you didn’t know that under Obamacare, the best way for insurance guys to make more money is to spend more. That probably sounds counterintuitive to you, but it’s true. You know why? Because Obamacare was designed by math-challenged leftists, meaning leftists who either didn’t understand math, or even if they did, they didn’t like math enough to care about boring stuff like percentages and multiplying things.
Here’s what the Obamacare math-morons did. They made laws that require insurance companies to spend at least 80% of insurance premiums on medical costs. This means that if an insurance company spends 80 million on healthcare costs, it’s allowed to charge insurance premiums of 100 million, which leaves 20 million gross profit before administrative and other expenses. Not bad, but if an insurance company spends ten-times that, they make ten-times the profit. Spend 800 million, and you get to charge a cool billion in premiums, making 200 million gross profit before other expenses.
The more insurance guys spend, the more they make. What a business model! Time for a shout-out to Obama: You were such a great president, not just because, as David Brooks noticed, you creased your pants better than anyone else in the history of mankind, but also because you were so excellent at increasing medical costs. It’s too bad about term limits, because, as I’ve recently written, I started a new party called The Stupid Party, and we’d be behind you a hundred percent to be President again. You’d fit right in, seeing that Obamacare is monumentally stupid, you invented it, and we love stupid.
Oh, I almost forgot where we are. We’re in the insurance industry’s Room Of The Royal Ripoff listening to our insurance bigshot, Albert Capone, tell us that he wants to lower medicine prices as well as other healthcare costs. Don’t get mad. Yes, he’s lying, but remember, the Room Of The Royal Ripoff is the insurance industry’s wing of The Drug-Market House Of Illusions and propagating illusions is what a drug-company bigshot like Mr. Capone is supposed to do in this place.
What’s that you say? You’re creeped out and want to leave this room? But I haven’t yet shown you my favorite insurance illusion. Remember a minute ago when Mr. Capone referred to himself and other insurance bigshots as the payers? Like they’re the ones paying for America’s medicines? Well, this is one of the cleverest illusions ever invented by mankind. When you buy an expensive prescription, oftentimes your insurer lays out most of the money to pay for it. And because you only had to pay a deductible or co-pay, you walk away not caring as much as you would have if you had to pay all of the cost yourself.
The insurance company isn’t paying any of the cost. The American consumer is, but doesn’t realize it. And that’s because, I’ll say it again, we’re in the insurance industry’s Room Of The Royal Ripoff, which is inside The Drug-Market House of Illusions. Things that look real are really illusions. Your insurer is a middleman, not the payer. The American consumer, he is the payer. When drug prices go up, insurance companies pay more, but next year, when it’s time for them to up their premiums, they factor in the higher drug prices and charge consumers for it. They say they’re the payer, and the illusion makes it feels like they’re the payer, but American consumers are.
Sounds cool, huh? But it’s even cooler than it sounds. You know why? Since the illusion makes it feel like the insurance companies are the ones paying most of our high medicine prices, the American consumer doesn’t get really mad. If consumers got really mad, they’d push their congressmen and senators to do something about high medicine prices, like maybe allow large-scale re-importation from licensed pharmacies in well-regulated countries. The drug companies don’t want that to happen.
By the way, here’s something to chew on. I’ve been saying mostly un-nice things about the insurers’ lobbying, but their main lobbying group, AHIP, reports something you might want to know. Over 22 percent of insurance premiums go to medications. If you’re the average American family of four, according to the 2018 Milliman Medical Index, you and your employer are spending about $28,000 per year on insurance. Even if you’re lucky enough that your employer pays two thirds of that, this means that every month, you’re paying almost $800 in premium, of which you’re spending $175 (22%) to pay for drugs. Imagine if we could cut that in half. You’d be saving $87 a month. You’d be over $1,000 richer every year!
Another thing. As I’ve written before, it’s not just that lower medicine prices would save us money on our private insurance. According to Medicare, its trust fund is due to run out of money in 2026. If the medicine prices that Medicare pays were cut in half, it would save over $65 billion a year. I know, I know. Yeah, the government doesn’t like saving money, but $65 billion. Wouldn’t that be nice?
Okay, let step out of the insurance industry’s Room Of The Royal Ripoff. Oh, you look tired. Do your feet hurt? No problem, just one more room and will be done touring The Drug-Market House Of Illusions.
Here, just a little further down the crooked hallway. See that, the door in the floor? Yeah, you’re right, it looks like a trapdoor. Don’t worry though, it’s how we get into the drug industry’s Subterranean Free Market Blues. Oh, look, Ollie Opioid left the insurance wing while we weren’t looking, and got here before us. It’s just like that Bob Dylan song, Subterranean Homesick Blues, where Johnny’s in the basement mixing up the medicine, except Ollie Opioid’s in the cellar making up his stories. Huh, what’s that you said, Mr. Opioids?
“Oh, hey man, I’m like totally into free markets. I mean, like totally, I believe in them and that’s why I’m against…umm…like…umm, what was I saying? Oh yeah, I’m really against unfree markets, cause they’re like such a bummer.”
Oops! Judging by his altered diction and the clouded look in his eyes, it would seem that Mr. Opioids has been dipping into some of his excess inventory again, partaking, as it were, into his quite profitable profits. So, Mr. Opioids, you’re strictly free market?
“Oh yeah, man, it costs like billions to develop a drug, see if it works, and as if that weren’t enough, the FDA makes us prove the side effects aren’t gonna kill a crapload of patients. Yeah like, I’m always telling the government to let the markets be free, and that way, we drug company guys can charge enough to make new supercool drugs.”
Ollie Opioids is a great actor, so believable. But what he doesn’t tell you is that he’s in favor of free markets only when it’s in his favor. He pays big money to lobby congressmen and senators for prohibition. Right, Ollie?
“Hey man, stop being such a downer.”
Ollie Opioids hates talking about it, but he and his fellow drug-company guys spend more on lobbying than any other industry and guess what? They’ve convinced Congress to pass laws. And these laws prohibit Americans from buying medications from licensed pharmacies in well-regulated nations like Canada, England, Switzerland, Israel, and others.
And you want to hear something weird? A lot of Americans who believe in free markets, people who call themselves free-market libertarians, have come to agree with the drug-company guys. Yeah, not only is there a prohibition of a free market in which medications can be safely re-imported, but in The Drug-Market House Of Illusions, many free-market libertarians are under the illusion that prohibition is just another word for free-market. Actually, I don’t think they’re under an illusion as much as they’re deluding themselves.
Being for prohibition means you’re free market, and being free-market means you’re a socialist. It’s confusing, but what an illusion, huh?
You know what? Sometimes it’s hard to fathom how The Drug Market House Of Illusions has come to be, how so many otherwise intelligent people can believe these illusions. And it makes me wonder about Ollie Opioid and his drug-company buddies. Maybe they’re secreting their way into all of the nation’s reservoirs and adding hallucinogenic drugs to the water supplies.
Well, thanks for taking a trip into The Drug-Market House Of Illusions. I hope it wasn’t too bad a trip. Let’s climb up those steps and exit through the cellar door. It’s sunny outside. I hope our eyes can adjust to the real world!