Contrary to what our democratic presidential hopefuls tell us, at no point in the near future will we see any form of federal health-care reform. To achieve any objective on this front there must be a bottom-up approach culminating at the state level. Fortunately in Minnesota, this is exactly what we are seeing on the issue of prescription drug importations from Canada.
Last week, Republican Gov. Tim Pawlenty said he plans to make Minnesota the first state to help residents purchase cheaper prescription drugs from Canada. U.S. Rep. Gil Gutknecht, R-Minn. has teamed up with Pawlenty to push for drug importation from Canada and other countries. Minnesota plans to set up a Web site listing Canadian pharmacies that meet state standards, as well as waive co-payments on drugs state employees buy off the site.
Canadian drugs can be up to half the price of U.S. drugs because of price controls the Canadian government imposes on them. Pawlenty and other state leaders’ actions are direct consequences of the concerns of the constituents that elected them. It has never been my belief that any health-care problem would be fixed by Congress; HMO and pharmaceutical companies make sure of that. For the first time in recent history we are seeing a movement within state governments to reform health care, and it is exciting.
But what is the problem with health-care costs and, more specifically, the pharmaceutical industry’s prices? On the surface it seems unfair that we pay more in the United States for drugs than people do in Canada. This alone is not necessarily the problem. We do pay more than they do, but we also pay more for cars, books and hamburgers because of Canada’s weaker currency and lower earnings power.
The real issue is that we pay far more than they do because we subsidize Canada’s price controls. Simply put, U.S. drug companies such as Pfizer and Eli Lilly develop and sell drugs for shareholder profit. The losses they take by selling drugs to Canada need to be made up here at home. In this case, U.S. consumers are taking on the burden of Canada’s prescription drug policy. The solution to this problem is not tighter controls of our own prescription drugs but allowing states to purchase prescription drugs from Canada.
Unfortunately, this solution is not going to keep drug prices down for good. The simple economic implications here are that drug prices will go down moderately here in the United States in the long run, but they might actually rise in Canada. This would solve the problem of the United States subsidizing Canada, but it is not going to make medication cheap. Major drug companies’ research and development spending is in the billions and the results are some of the greatest innovations we have ever seen. It is not our major universities and government-funded programs creating these new medications, it is our drug companies.
The only way prescription medications will ever be cheap is to sacrifice this expensive research and development. If we want cheaper medications we will have to sacrifice our position as a national leader in medical innovation. In the meantime, I no longer see any reason to pay for Canada’s price controls.
For his approach, Pawlenty has and will be criticized by Republicans who believe a free market cannot support a nation that controls the prices of its goods, in this case, prescription medication in Canada. This criticism is unjust because all Pawlenty is proposing is buying the medications where the price is better; there is nothing more free market than that. He is responding to the wishes of the people of Minnesota and pursuing a cost-cutting measure that is needed in times of a deficit. It is a state-level movement like this and like others around the country that will be needed to have any impact on our nation’s health-care system.
Jesse Miller is a finance junior and a guest columnist. He welcomes comments at [email protected]
