Medicare Drug Benefit

Bush is on the road today selling his version of a senior drug benefit – the needlessly complex and poorly run Medicare drug card program.

One thing that I bet Bush will not address, however, is why his Medicare drug benefit legislation forbade the importation of cheaper drugs from other countries. Bush has claimed to support free trade (though it is true that we know from other contexts that such claims are completely hollow), and to be in favor of the workings of the market system. So why not allow international competition in pharmaceutical products?

If consumers did have the option of purchasing their medicine from another country such as Canada, this is what would likely happen: prices would go down in the US, and would go up in Canada and other countries, until prices become more or less equal across countries; profits of pharmaceutical firms would fall somewhat; the revenue that those firms use to fund their R&D would no longer come exclusively from the US, but would begin to come somewhat from other countries; consumers and taxpayers in the US would reap large gains as the medicine that they must buy individually or through government programs becomes cheaper.

Given this, we can now answer the question I posed above. The Bush administration does not wish to allow international competition because, even though it would have the numerous positive effects listed above, it would result in a fall in the profits of pharmaceutical firms. That’s why this is a prototypical example of what we’ve seen in many other contexts: when it comes to policy-making in the Bush administration, corporate profits trump all other considerations.