(Part 2)

The effect was tremendous. In just a few years, over half of all prescriptions shifted to generic versions, as consumers were exposed to this proxy pricing. It didn’t reflect the actual cost, but it reflected it enough to influence the consumer’s decision on which drugs to choose, and most chose the cheaper one. Of the remainder, perhaps they didn’t care, or perhaps the more expensive alternatives actually worked better - generics are not identical to their proprietary counterparts, and some patients respond differently. The alarming inflation rate for prescription drugs slowed dramatically.

The drug companies figured out what was happening, and in an effort to restore the invisibility of their actual prices to consumers, they responded by offering coupons for their proprietary versions of drugs, in the amount of the copay. So their drugs, with the coupon, were once again no different in price, or even a little cheaper than their generic equivalents.

Here, TAL and I part ways somewhat. They present this renewed opacity as a driver behind costs that are once again on the increase. My take is that it’s a discount - from the consumer’s perspective. The drug companies have effectively had to lower the price of their product to consumers. Now, the insurance companies are not getting any benefit out of this; they’re still on the hook for the full amount of the drug. But it illustrates that these markets are susceptible to traditional market forces if a way can be found to allow them to work.

How to extend such a successful model to the medical system as a whole may not be so clear, although in many cases it would be simple. And how to prevent both insurance companies and health care and product providers from gaming the system also needs some attention, as illustrated.

On a separate note: we already have a system that insures roughly 85% of the population, which implies that a 15% increase in premiums would provide sufficient funds to cover the remainder. Less of an increase would be required in real life, because according to just about everyone, a large portion of the uninsured consists of young, healthy people who have little impact in the way of costs on the system, reducing the actual cost their addition would entail.