Inside Health Insurance: Part 5—Controlling Provider Costs--Pharmaceuticals

One of the largest components in rising health care costs is in the area of drugs and prescriptions. Having sold health insurance for years, I have heard comments from more than one health insurance company that the primary reason they needed to increase premiums was based upon an escalating cost for the prescription drug component. Are new drugs priced too high and do certain segments of our population pay more than their fair share?

Before we try to answer this, let’s take a look at our current use of drugs and see how they affect all of our lives. Due to the availability of prescription treatments for illnesses and medical conditions, we no longer have to experience the continual health threats of high blood pressure and cholesterol, or take allergy injections for seasonal hay fever. With drugs, we have slowed the frightening mortality of HIV and AIDS, and allowed cancer to become a survivable disease. Even the devastating effect of strokes, when caught early enough, can be warded off with a simple over the counter medication. There are so many drug treatments for previously life threatening conditions that this single medical advance accounts for much of our increase in longevity.

New drugs brought to market are expensive, but so is new computer technology or new electronics. It’s just that the development costs for new drug treatments is much higher, and the time frame from cutting edge to commodity is much longer in pharmaceuticals. Once generics are available, however, these amazing drugs are readily available for very reasonable costs, and some even make it to over the counter versions. Much like the way hospitals have to recover the expense to buy their equipment in patient charges, drug companies must recover their research and development costs for our amazing new treatments before their patent runs out and generics overtake their sales with low cost options. Not only do they have to make back the R&D costs for successful drugs, but all failed attempts have to be paid for from the few drugs that do make it to market.

Perhaps drug companies charge unusually high prices when they do bring a new treatment to market not because they are greedy, but because they don’t know when they will be able to come up with their next best seller. Do we really want to discourage them from taking the financial risks, or doing the necessary research to develop new cures, and miss the potential of having more of the advances which have changed our health and our ability to treat so many illnesses, when in time, even these high priced new medicines will eventually become readily affordable for most people.