Buying medicine in America has great potential to put a person in a contemplative mood.
The prices of medicine, especially for prescription medicines with no generic equivalent, can cost a lot out-of-pocket, even with insurance.
I have asthma, which means that I can look forward to spending around $1300 dollars a year on a daily preventative inhaler. There’s certainly a disconnect between holding an inhaler feels like maybe $15 in production costs that with insurance costs $105 for a month’s supply. That’s about $3.45 a day.
However, I like breathing, so I’m going to plunk the money down. The upside is that it goes generic in 2021, at which point I should be able to save some money.
However, there are places around the world where the price already resembles a generic.
Just doing a little bit of price checking reveals that my medication would be:
It’s at least $1 per day more expensive than comparable medicines in Canada.1
After converting pounds to dollars, $38.87 per month in the UK.
Living somewhere else would save me a lot of money in direct costs. Did I mention that all of those prices are without insurance?
Of course, all of these countries have a governmental agency that negotiates a price, sets a price cap based on comparable products, or limits a company’s profit margin.
As Americans are quite aware, our government does not. Consequently, our drug prices are much higher.
On the other hand, it’s hard to do an apples-to-apples comparison. I can see what the drug company pays in addition to my copay. Insurance companies are fond of telling us exactly how much money they’re saving us, which is meant to blunt the blow of the monthly insurance cost.
Governments tend to be more secretive in their negotiations. It’s hard to tell exactly what the total price of drugs is then because only the copay half of the equation is low. However, it’s likely that they are paying less since they have a monopoly over the health services.
On the other hand, these government-run systems can be very expensive in terms of required contributions to the systems or taxes. In Germany, people who make less than 59,400 Euros annually, which is $67,119, have to contribute 8.2% of their income to the public insurance system. At the most, that costs $5503.758, not counting other taxes. But, that doesn’t assess the full cost, as employers are on the hook for another 7.3% of the person’s salary in healthcare taxes.
In the United Kingdom, taxes raised for healthcare alone are, on average, 1620 pounds per person per year, which comes out to $2264.98.
Here’s a chart with average spending across a number of countries:
The United States is not exactly winning this race.
Now, the healthcare companies are smart. They sell medicine for more in places with a higher median per household income, and for less where it is lower. The United States is #6 on that list.
Sweden is higher at #3, and Australia is #4, while Canada is a hair lower at #7, Japan is #15, Germany is #16, the U.K. #19, France #21, and Italy #30.
The list is roughly then what we would expect. The change is still dramatic, but it’s also factoring in the government intervention.
But is it fair?
Companies that make medicine are often the ones doing the research to develop new drugs. Part of their revenue is invested directly back into that development pipeline.
Here’s a quote on that pipeline from an article published by the International Business Times: “’This imbalance can certainly be perceived as other countries’ freeloading, Kolassa, a former director of pricing and economic policy at the drug company Sandoz, said. He recalled negotiating drug prices with foreign governments, some of whom refused outright to buy certain drugs if they were priced too high, even if doing so reduced contributions to R&D. ‘They knew the U.S. would cover it,’ he said.
“Rafi Mohammed . . . said the differences in drug prices should raise larger questions about how to finance pharmaceutical R&D, which should be considered a common good. He added, ‘Every country needs to contribute in some fair fashion to this pool.’”
Estimates vary, but various sources suggest that companies in the United States develop 40%, 42%, 57%, or even 95% of all new drugs in the world. Even at the low end, that’s a huge chunk of the new medicines created, which everyone benefits from.
Part of the reason that prices have risen in the United States and will continue to rise is that there is no additional profit to be had in Europe. The prices are fixed. And at the same time, Europe is in many ways freeloading off of the price gouging that is taking place in the United States.
Trust me, I’m okay with the governments subsiding medicine, as long as the people are willing to pay for it. On the other hand, I think it’s wrong that they set price caps, which have the side effect of passing cost (or increasing profit margins) over to Americans.
This is fundamentally unfair and makes for bad neighbors.
The only fair solution I see is to either eliminate price caps so that the free market can determine what the price of a drug should be. Failing that, European countries with price caps should be required to pay subsidies to Pharmaceutical companies in proportion to the revenue lost to price caps.
With that in place, American legislators would have the leverage to put a medical price freeze into place. No new increases—let’s let Europe pay their fair share of new drugs for a while.
After all, it’s medicine, people. Why should only America have to pay for it?