President Trump pledged to bring down drug prices.
“One of my greatest priorities is to reduce the price of prescription drugs,” Trump said during his State of the Union address on Tuesday evening. “In many other countries, these drugs cost far less than what we pay in the United States and it’s over, very unfair. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities for the year.”
Mark Hamrick, Washington, D.C. bureau chief at Bankrate.com, said the president has made that promise before. “Will his choice of a former drug industry executive, Alex Azar, now the head of Health and Human Services, deliver results on that front?” he said. “I’d prefer to place my bet on the partnership just announced by Berkshire Hathaway, J.P. Morgan Chase and Amazon.”
Earlier Tuesday, Amazon Inc. AMZN, +1.42% Berkshire Hathaway Inc. BRK.A, -0.15% and J.P. Morgan Chase JPM, -0.94% three of the biggest companies in the U.S., surprised the health-care industry on Tuesday with a plan to form a company to address rising health costs for their U.S. employees. They said it will be “free from profit-making incentives and constraints.”
U.S. spending on health has spiked over the last six decades
Health-care costs have skyrocketed over the last 60 years, according to the Kaiser Family Foundation, a nonprofit, private foundation based in Washington, D.C. In 1960, hospital costs cost $9 billion. In 2016, they cost $1.1 trillion. In 1960, physicians and clinics costs were $2.7 billion, but ballooned to $665 billion. Prescription drug prices soared from $2.7 billion in 1960 to $329 billion.
U.S. health-care spending reached $3.3 trillion, or $10,348 per person in 2016. The Trump administration has pledged to roll back the 2010 Affordable Care Act, perhaps Barack Obama’s signature achievement as U.S. president. Roughly 1 million people will lose their insurance under Trump’s plans, according to the Congressional Budget Office.
Berkshire Hathaway chairman and CEO Warren Buffett didn’t hold back in excoriating the health-care industry. “The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said. Amazon founder CEO Jeff Bezos and J.P. Morgan Chase chairman and CEO Jamie Dimon were more measured in their remarks.
“Amazon, Chase and Berkshire Hathaway think they can do it better than the insurance companies,” said Jamie Court, president of Consumer Watchdog, a nonprofit progressive advocacy group based in Santa Monica, Calif. “There’s a lot of frustration with the high cost of health insurance, yet government’s offering almost no systemic solutions. It’s as big a change as I have seen in the market in years.”
As health-care costs soar, wage growth has been choppy
“Bezos, Diamond and Buffett are basically creating the nucleus of a single payer system where ’the bigger the buyer, the better the price’ rules,” Court added. “Only they’re doing it with business acumen on a micro-level rather than opening it up on a grand scale to competing interest groups that often stifle government’s innovation. Bigger purchasers get better deals.”
Why are health-care costs so high? David Cutler, economics professor at Harvard University, has cited administrative costs, which account for one quarter of the U.S. health-care costs, among the highest percentages in the world. Medicare and Medicaid give the lowest prices for drugs because the government has more clout. And Americans receive more procedures when they do get sick.
These costs can also upend a person’s retirement. Last year, the Employee Benefit Research Institute looked at the amount of savings Medicare beneficiaries are projected to need to cover health costs in retirement. In 2016, a 65-year-old man would need $72,000 in savings and a 65 year-old woman would need $93,000 to have a 50% chance for enough to cover health costs.