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Financial Literacy

This Patch of the Swamp Won’t Be Drained

Do you think your prescription drugs are too expensive?

If your answer is yes, welcome to the crowd!

An overwhelming majority of Americans – about 8 in 10 – call the price they pay for prescription drugs “unreasonable.” That’s according to the Kaiser Family Foundation.

American Drug Cost Survey

But a quick glance at the mainstream media’s headlines suggests that politicians are going to fix this.

Oh yes, just you wait. The Democrats are going to enact Medicare for all. Thirteen of the 19 remaining Democratic presidential candidates support extending Medicare to all Americans, including front-runners Kamala Harris, Elizabeth Warren and Bernie Sanders.

A single-payer system like that (with the government as that payer) would drive drug prices down considerably – as much as 30% – according to a recent report by Raymond James. The government would likely force lower prices by threatening to cancel drugmakers’ patents if they didn’t cooperate, according to the analysis.

If not the Democrats, President Trump will cut drug costs. He’s been talking a lot lately about several plans to lower the cost of prescription drugs.

But none of them seem to be going anywhere.

Trump’s point man on the issue, Secretary of Health and Human Services Alex Azar, says Trump is committed to this effort. But I have to doubt that statement a bit when I consider that Azar came to the administration from pharma giant Eli Lilly, where he was an executive.

Legislation that truly lowers drug prices is considered to be an existential crisis for the pharmaceutical industry, which will take a major hit if any laws pass threatening drugmakers’ ability to charge what they want.

That’s why the trade groups and lobbies representing Big Pharma are showering Congress with money right now. In the first half of this year, these lobbies gave 30 senators facing reelection nearly $845,000. Senate Majority Leader Mitch McConnell alone got $85,000 from the drugmakers.

If you don’t think that kind of money talks on Capitol Hill, I’d like to show you a nice bridge in Brooklyn I can get you for cheap.

But I’m not the healthcare expert here at the Club. That honor goes to Chief Income Strategist Marc Lichtenfeld. So, I put the question to Marc: Any chance Congress or the White House will take any major action on drug costs?

“I don’t expect much to happen that will dramatically reduce drug costs,” Marc told me. “Big Pharma spends more lobbying dollars than any other industry. They have the ears (and spines) of countless influential members of the House and Senate – many of whom have an inside channel to the president.”

But what about the Democrats? Surely they’ll take action, right?

“If there is a big change in 2020? Don’t worry, I’m sure Big Pharma money will reach the Democrats as easily as it reached Republicans,” Marc told me.

Marc’s cynical, but he’s probably also right. Political analysts say that, should the Senate flip to the Democrats in the 2020 election, Big Pharma will merely double its budget for political donations. And if it has helped some senators win reelection in 2020, well, it’s got brand-new best friends on Capitol Hill.

So it’s likely bad news for those 80% of Americans who would like to see more reasonable prices at their local CVS or Rite Aid.

No matter who wins the White House in 2020 or how the healthcare debate goes, Big Pharma and its army of lobbyists will probably defeat any bill that drives down drug prices – or water it down enough that consumers don’t feel much benefit.

That’s just the way things work in Washington.

Good investing,

Matt


About

Matt has worked as an editorial consultant to the International Monetary Fund, the World Bank, the Economist Intelligence Unit and other global macro-institutions. He wrote about markets and economics for U.S. News & World ReportBloomberg News and Investor’s Business Daily, among other publications. He also worked for several years as head of political economy for a Financial Times-owned macroeconomic consulting firm, advising hedge funds around the world. Matt’s claim to fame is that he’s interviewed two U.S. presidents and has spoken with five Federal Reserve Chairs from Paul Volcker through Jerome Powell. Matt also served as The Oxford Club’s Editorial Director for two years.

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