Search results

The new Cato Institute book The War on Prices explains that–contrary to industry propaganda that holds government price controls only result in inefficiently low prices–U.S. medical prices are often high because government controls them.

Regulators should not make the products they regulate worse.

CMS should be giving away Medicare and Medicaid data at least as freely as it shovels federal dollars out the door to high‐​cost, low‐​quality health care providers.

If you support universal health care and the right of patients to make their own health decisions, Recovery is for you.

Medicare's new price-setting process for drug purchases is better than its current one if the result is lower government spending.

The Biden Administration's proposal would strip health insurance from sick patients, with devastating financial and health consequences. It is unreasonable, unlawful, and cruel.

Michael F. Cannon


President Biden has proposed requiring insurers (1) to cancel short‐​term health insurance plans after four months and (2) to refuse to re‐​enroll those patients. I've written previously about how these changes would increase the number of uninsured U.S. residents by 500,000.
The Biden administration believes those changes are necessary to force people into ObamaCare plans. They may be right. The non‐​partisan U.S. Congressional Budget Office reports that for many consumers, short‐​term plans offer a better deal than ObamaCare. Short‐​term plans often "have lower deductibles or wider provider networks," the agency writes, at premiums "as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan."
But not everyone who loses access to short‐​term plans can just enroll in an ObamaCare plan. Congress generally prohibits those folks from enrolling until the following January. So Biden's proposal would throw short‐​term plan enrollees, many of whom will have expensive illnesses, out of their plans and leave them with no coverage for up to 12 months.
Even then, ObamaCare will still be unaffordable for many people. I know one such individual personally. Let's call her "Maria."









Julie Andrews as Maria in The Sound of Music (1965).
Maria is an immigrant and postulant. That is, she is entering a monastery this year to study to become a nun. When she enters, her annual income will fall below the federal poverty line of $14,580. That's plenty low to qualify for Medicaid but Maria's immigration status makes her ineligible.
An ObamaCare plan would cost Maria at least 33 percent of her annual income, i.e., four times the 8.5 percent threshold that ObamaCare considers "affordable." Why? She would have to pay the full $4,821 premium herself because (ironically) her income will be too low to receive a subsidy.
Fortunately, under current rules, there's a more affordable option. Maria could purchase a series of one‐​year short‐​term plans. She would have many options, with premiums ranging from $1,100–$5,300 per year and deductibles ranging from $1,000–$10,000.
Crucially, a short‐​term plan would not require Maria to violate her religious beliefs. ObamaCare is so much more expensive in part because it would require her to purchase coverage for contraceptives and maternity care. One of those things violates her religious beliefs; neither of them she needs. Short‐​term plans leave Maria free to follow her conscience by declining to pay for contraceptives.
President Biden is a self‐​described pro‐​immigrant Catholic. His proposal would nevertheless require this immigrant and aspiring Catholic nun to pay contraceptives‐​coverage‐​laden premiums that are four times higher that what Biden himself considers affordable.
Despite its title, the "Affordable Care Act" made health insurance less affordable for millions. Short‐​term plans can help. Biden should rescind his proposal to limit them.

Michael F. Cannon


Earlier this week, the press shop at the U.S. Department of Health and Human Services (HHS) spent taxpayer dollars to host a live‐​tweet, in the voice of the HHS building, to respond to press reports that HHS's building is the ugliest in in Washington, D.C.









Someone actually thought this was a good idea.
If I worked in that shop, I too might spend taxpayer dollars on gimmicky stunts to distract attention from the harms the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC), and Centers for Medicare & Medicaid Services (CMS) do to patients.
When I read the live‐​tweet, it was even worse than I expected. HHS staff made the shameless claims that the department recently "insured a record number of people with quality, affordable health care coverage" and "provided the tools to fight COVID for free." These claims are a jaw‐​dropping mockery of the hundreds of millions of patients whom HHS has harmed and whose earnings the agency has wasted.
"Quality…health care coverage"?
They can't mean Medicaid. The most reliable evidence that exists on the quality of Medicaid coverage comes from the Oregon Health Insurance Experiment (OHIE). The OHIE was a randomized, controlled trial, which means that if you believe something other than what it shows, you should abandon that belief. The OHIE "did not find evidence that Medicaid coverage improved physical health," even though "the[] physical health measures were chosen explicitly because clinical trials have shown that they can respond to medication within this [study's] time frame."
They can't mean Medicare. As I detail elsewhere, Medicare has repeatedly shut down life‐ and cost‐​saving quality innovations. Medicare's price‐​control commission—officially, the Medicare Payment Advisory Commission, or MedPAC—has complained for decades that the program penalizes high‐​quality care and encourages low‐​quality care:
2003: "[Medicare] generally fails to financially reward higher‐​quality plans or providers. Medicare's beneficiaries and the nation's taxpayers cannot afford for the Medicare payment system to remain neutral towards quality. Change is urgently needed…[Medicare] is largely neutral or negative towards quality. All providers meeting basic requirements are paid the same regardless of the quality of service provided. At times providers are paid even more when quality is worse, such as when complications occur as the result of error."
2006: "Evidence shows beneficiaries do not always receive the care they need, that too often the care they do get is not of high quality, and that in some places where they receive more care there are also poor outcomes…Patient safety also continues to present a troubling picture."
2021: "There is also substantial use of low‐​value care…that has little or no clinical benefit or care in which the risk of harm from the service outweighs its potential benefit. We estimate that, in 2018, between 22 percent and 36 percent of beneficiaries in traditional FFS Medicare received at least one low‐​value service…Low-value care has the potential to harm patients by exposing them to risks of injury from inappropriate tests or procedures and can lead to a cascade of additional services."

They can't mean ObamaCare. Its supposed preexisting‐​conditions provisions are encouraging "poor coverage" for patients with costly illnesses, costing them thousands. As I report elsewhere:
Economic research provides evidence that these "protections" are forcing insurers to engage in such discrimination against patients with multiple sclerosis, infertility, substance abuse disorders, hemophilia, severe acne, nerve pain, and other conditions. Patient advocacy groups have alleged such discrimination against patients with cancer, cystic fibrosis, hepatitis, HIV, and other illnesses. Across all Obamacare plans, choice of doctors and hospitals has grown narrower, and drug coverage has gotten skimpier…
Indeed, this form of discrimination against preexisting conditions is arguably worse than the kind it (mostly) displaced. Unlike discrimination in pricing and enrollment, discrimination in plan design harms all consumers. It not only "undoes intended protections for preexisting conditions" but creates a marketplace where even "currently healthy consumers cannot be adequately insured." Patient‐​advocacy groups insist discrimination in plan design "completely undermines the goal of the ACA."

They can't mean short‐​term plans. The Congressional Budget Office (CBO) says short‐​term plans often "have lower deductibles or wider provider networks than plans in the [Obamacare] market." HHS is currently trying to reduce the quality of short‐​term plans by forcing insurers to cancel them after four months, leaving sick enrollees with no coverage for up to one year. The CBO estimates HHS's proposal would leave half a million U.S. residents with no health insurance at all.
"Affordable health care coverage"?
They can't mean Medicare. Despite the trillions HHS spends on Medicare, effective medical care is still unaffordable for many enrollees. As I report elsewhere:
11 percent of Medicare enrollees overall, 20 percent of enrollees "in fair or poor self‐​assessed health," and 23 percent of Black enrollees report "delaying getting medical care because of cost, needing medical care but not getting it because of cost, or problems paying or inability to pay any medical bills."

Medicare is so unaffordable, Congress has had to increase the Medicare tax 28 times since its inception. That's an average of one tax increase every two years.









Medicare won't require any more tax increases, though, right?
It still hasn't been enough to keep up with runaway Medicare spending. How do we know?
They can't mean Medicare or Medicaid. These two programs are almost solely responsible for the federal government's long‐​term debt problem. They are the only major category of federal spending consuming a rising share of GDP. Net interest on the federal debt is rising as a share of GDP because Medicare and Medicaid are growing.









Source: Congressional Budget Office
Most of that growth is Medicare. The CBO writes, "Spending on Medicare is projected to account for more than four‐​fifths of the increase in spending on the major health care programs over the next 30 years."









Source: Congressional Budget Office
They can't mean ObamaCare. ObamaCare plans are so expensive, Congress is subsidizing enrollees earning up to $600,000 per year. No, that's not a typo.
They can't mean short‐​term plans. The CBO says short‐​term plans provide lower deductibles and wider provider networks than ObamaCare at premiums "as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan." HHS is trying to destroy quality, affordable health insurance and force people into low‐​quality, unaffordable health insurance.
"Provided the tools to fight Covid‐​19"?
They can't mean the FDA. For several months in 2020, the FDA blocked the use of safe, effective COVID-19 diagnostic tests. Epidemiologists called the move "insane."
They can't mean the CDC. When the FDA finally stopped blocking all COVID-19 diagnostic tests, it approved only one: the CDC's. The CDC promptly contaminated its test kits with the coronavirus, rendering disease containment efforts "useless."
Conclusion
When HHS boasts about its track record of quality and affordability, remember Colette Briggs.









Photo credit: Katherine Frey/​The Washington Post
Colette is a little girl with cancer. If HHS had just left her alone, she would have had affordable, secure health insurance coverage. Instead, we saw headlines like, "Parents of 4‑Year‐​Old with Cancer Can't Buy ACA Plan to Cover Her Hospital Care." Why?
The benevolent U.S. Department of Health and Human Services cancelled the Briggs family's health plan, forced them into an ObamaCare plan, increased their premiums, and pushed the providers Colette needed out of their ObamaCare plans. What happens inside the HHS building left Colette's well‐​to‐​do family desperate and scrambling to get a little girl with cancer the medical care she needed. The flaks who staged this live‐​tweet stunt should try explaining to Colette and her parents how HHS offers "quality, affordable health care coverage." I would be happy to arrange the meeting.
The outside of the HHS building is ugly, but not as ugly as what happens on the inside.

Michael F. Cannon


A week or so ago, friend and HuffPost reporter Jonathan Cohn emailed me:


Consumers frequently don't understand what they're buying [when it comes to short‐​term, limited duration insurance (STLDI)], or how STLDI might be different from an ACA‐​compliant plan. In part, because companies selling STLDI aren't always clear on what the plans do/​don't cover. [In other words], there's an inherently high risk for confusion—and opportunity for exploitation/fraud—in the way the market exists now. What do you think about this argument?


Cohn ultimately turned that topic into this article.

It contains a number of inaccuracies and misleading characterizations.


Cohn laments gaps in STLDI plans without noting that government regulation was responsible for many of those gaps. When Jeanne Balvin lost her STLDI plan in the middle of an episode of diverticulitis, leaving her with $97,000 in unpaid medical bills, it was because the Obama administration required her carrier to drop her after just three months.
Cohn fails to note similar gaps in ObamaCare plans. When Obama threw Balvin out of her STLDI plan, ObamaCare denied her coverage until the following January. Indeed, for 10 months out of the year, STLDI plans have fewer gaps than ObamaCare plans because, with few exceptions, ObamaCare denies coverage to everybody outside of a narrow window in November and December. I guess ObamaCare's coverage gaps don't matter?
Cohn portrays rules that President Trump put in place in 2018 as widening such gaps. In fact, Trump's rules increased consumer protections in STLDI plans by filling in the gaps that Obama had created. Trump's rules would not have required Balvin's insurer to drop her.
Cohn inaccurately casts the new STLDI rules that President Biden just proposed as an effort to "intervene in markets, in order to protect people from risk and guarantee a level of economic security." In fact, Biden's proposed rule deliberately exposes sick people to greater risk by stripping them of their health insurance after just four months and leaving them with no health insurance for up to 12 months, much as Obama did. Biden's rules would make health insurance less universal. Congressional Budget Office estimates suggest they would leave some 500,000 consumers who would otherwise have health insurance with no coverage at all.
Cohn writes that while ObamaCare imposed new regulations on most forms of health insurance, "The Affordable Care Act…made an exception for 'short term/​limited duration' plans…But it allowed the federal government to regulate these plans." Nothing in that quote is true. Congress exempted STLDI from nearly all federal health insurance regulations not in 2010 when it passed the ACA but back in 1996 when it passed the Health Insurance Portability and Accountability Act (HIPAA). ObamaCare didn't create the exemption for STLDI, touch that exemption, or give regulators any more authority over those plans than HIPAA already did. If anything, ObamaCare signaled that Congress wanted to protect patients from coverage cancellations, not mandate coverage cancellations, as Obama did and Biden seeks to do. ObamaCare's silence on the STLDI exemption suggests Congress had no problem with the rules at the time, which allowed such plans to last 12 months.


You get the idea.

The main reason I'm here today, though, is to give a fuller response to the question of whether STLDI plans mislead consumers. Cohn quotes me in his article. (Thanks, friend!) But he used only part of my response to his question. Here's my full response, which I have lightly edited for public consumption.


Barack Obama misled more people about ObamaCare plans than insurers will ever mislead people about short‐​term plans. ObamaCare plans are themselves notorious for misleading consumers via inaccurate provider directories. So are Medicare Advantage plans. Medicare's trust funds are an institutionalized, ritualized lie. Do any of the people who want to eliminate short‐​term plans propose eliminating those plans?

It's a complete[ly disingenuous] argument. Health insurance is complex. Few consumers will ever have full information. Every health insurance plan will have enrollees who didn't understand what they were getting.

When there is an information problem, you don't ban the product. You fix the information problem. Many car dealers are shady. Do we ban cars? No. We don't even ban used cars. We deal with the information problem.

The 2018 Trump rule mandates that short‐​term plans disclose that they are not ObamaCare plans. I imagine this mandate ironically makes short‐​term plans more attractive to consumers as often as it makes them less attractive.


I italicized the two sentences Cohn selected for his article. As you can see, those two sentences don't really capture my broader point that complaints about STLDI plans misleading consumers are disingenuous. In any case, such deception in no way justifies throwing patients out of their STLDI plans after four months.

Worse, those two sentences in isolation could give the impression that I don't care about the costs of people misleading consumers about their health plans. I would go so far as to say I care a lot more than STLDI opponents do because I also care when Medicare or Medicaid or Medicare Advantage plans or ObamaCare plans or Medicare's trustees or Congress or Obama, Trump, or Biden do it.

The irony of Cohn's article is that, while purporting to explore the important issue of shadowy figures misleading consumers about health insurance, he ignores the biggest example of that problem in this whole fracas.

When he was running for president in 2019, Biden, like his former running mate, promised that he would let people keep their health plans:

@michaelfcannon A new proposal from President #Biden would *mandate* the very practice of canceling #HealthInsurance for the sick that Biden promised #Obamacare would end. More: https://​the​hill​.com/​o​p​i​n​i​o​n​/​h​e​a​l​t​h​c​a​r​e​/​4​0​8​7​3​9​6​-​b​i​d​e​n​s​-​n​e​w​-​p​l​a​n​-​t​h​r​e​a​t​e​n​s​-​h​e​a​l​t​h​-​c​o​v​e​r​a​g​e​-​f​o​r​-​m​o​r​e​-​t​h​a​n​-​h​a​l​f​-​a​-​m​i​l​l​i​o​n​-​p​e​ople/ #CatoHealth @C@Cato Institute ♬ original sound — Michael F. Cannon

Biden's STLDI proposal breaks that promise. Turns out what Biden meant was, "If you have private health insurance, you can keep it–but only for four months."

Biden misled millions of health insurance purchasers. More than any STLDI insurer ever will. But HuffPost readers would never know.

Michael F. Cannon


Health care in the United States is such an expensive mess, no one wants to take credit for it. Patients and their families go out of their minds dealing with it. Health care devours a growing share of workers' earnings every year. Politicians in other countries use "American health care" as an epithet. Politicians in the United States either run against U.S. health care or run away from it.
How did things get this bad?
A new online publication explains that the root cause of the United States' health care woes is not market failure or corporate greed or even World War II‐​era wage controls. "The Original Sin of U.S. Health Policy" explains that the blame lies with…the federal income tax.
When Congress created the (second) federal income tax in 1913, it did not foresee–it could not possibly have foreseen–that growth in medical innovation, incomes, and financial services would increase demand for medical care, medical insurance, or employer provision of both. Since Congress had been silent on the question of how the new income tax would treat employer‐​purchased medical care and health insurance, it fell to Treasury bureaucrats to answer. Sometime in the 1920s, those bureaucrats decided employer‐​provided group insurance would not be subject to the new tax. From that moment, the federal income tax effectively created a penalty on individual control of medical and health insurance decisions that continues to this day.









A new publication from the Cato Institute.
That implicit penalty causes or exacerbates every single problem that consumers and policymakers have confronted since. Medicare and Medicaid (1965), the HMO Act (1973), certificate of need regulation (1974), FSAs (1970s), COBRA (1985), HIPAA (1996), MSAs (1996), HRAs (2000s), HSAs (2003), SCHIP (1997), the HITECH Act (2009), the Affordable Care Act (2010), the No Surprises Act (2020), etc., are all efforts to fix problems that Congress itself created when it enacted the federal income tax. More often than not, these "solutions" exacerbate the very problems they attempt to solve, and thus ironically spur calls for even further government intervention.
The tax exclusion for employer‐​sponsored health insurance distorts labor markets, the financial sector, and the health sector. It compels workers to purchase coverage that is more likely to drop them when they are sick. It discriminates against low‐​wage workers, women, obese workers, older workers, and others with expensive medical conditions, on whom its implicit penalties fall hardest.
Restoring workers' rights and making health care more universal requires cleansing U.S. health policy of its original sin.

Michael F. Cannon


The Office of Management & Budget (OMB) has announced its approval of a proposed rule on so‐​called "short‐​term limited duration insurance" health plans (STLDI). The administration could release the proposed rule at any time.
Health reporters need to keep in mind when covering Biden's proposed STLDI rule: just about anything the administration proposes would eliminate consumer protections and throw sick people out of their health plans. If the proposed rule shortens STLDI contract terms, limits the number or duration of renewals, and/​or prohibits renewal guarantees, it will gut consumer protections and throw sick patients out of the health insurance that is protecting them and their families.
Some background. Congress exempted STLDI plans from all ObamaCare regulations. Current STLDI rules, which the Trump administration put in place in 2018, allow the initial plan contract to last 12 months and allow consumers to renew the initial contract for up to 36 months. Longer contract terms and renewals protect patients. They shield patients both from losing their coverage and from reunderwriting (read: higher premiums) after they get sick. Current STLDI rules even extend those consumer protections beyond 36 months by recognizing that federal law imposes absolutely no restrictions on insurers selling standalone "renewal guarantees" that allow sick patients to enroll in a new STLDI plan without reunderwriting after 36 months.
The U.S. Court of Appeals for the District of Columbia rejected an attempt by ObamaCare insurers to strip these consumer protections from the STLDI plans with which they compete. (A cheeky move even by DC lobbyist standards.) The court wrote that, were the government to grant the ObamaCare insurers' request, STLDI enrollees "could be 'subject to re‐​underwriting' every three months, could see a 'greatly increased' premium, [and] could be denied a new policy 'based on preexisting medical conditions.'" The court further held, "Nothing in [federal law] prevents insurers from renewing expired STLDI policies."
We don't know the content of Biden's proposal to change current STLDI rules, but OMB writes:
This rule would propose amendments to the definition of 'short‐​term, limited‐​duration insurance' under section 2791(b)(5) of the Public Health Service Act. The rule's proposals would be designed to ensure this type of coverage does not undermine the Affordable Care Act, including its protections for people with pre‐​existing conditions, the Health Insurance Exchanges, or the individual, small group, or large group markets for health insurance in the United States.

That is the ideologically charged, smokescreen rhetoric that ObamaCare supporters use when they want to protect ObamaCare insurers from competition by stripping consumer protections from patients in STLDI plans.
First of all, ObamaCare is the junk coverage here. Economic research shows ObamaCare's preexisting‐​conditions "protections" have eroded coverage at a cost to sick patients of thousands of dollars per year, and even "currently healthy consumers cannot be adequately insured." ObamaCare has caused individual‐​market provider networks to narrow significantly since 2013, when network breadth reflected consumer preferences. ObamaCare premiums are skyrocketing to the point where Congress is offering subsidies to households earning $600,000 per year. STLDI plans offer more flexibility and choice, protect conscience rights, offer broader provider networks, cost up to 70 percent less than ObamaCare plans, and can even reduce ObamaCare premiums by improving ObamaCare's risk pools. ObamaCare supporters criticize STLDI for charging actuarially fair premiums. But federal law allows STLDI plans to do so. Moreover, ObamaCare's risk‐​adjustment program literally tries to emulate actuarially fair premiums because actuarially fair premiums minimize insurers' incentives to avoid or shortchange the sick. If actuarially fair premiums are as bad as ObamaCare supporters say, why are ObamaCare supporters trying to emulate them?
The important thing for health reporters covering the proposed rule to know, however, is that just about any way Biden proposes to limit STLDI plans would in fact strip actual consumer protections from actual sick patients. That includes:
Shortening STLDI contract terms
Limiting the number or duration of renewals
Prohibiting renewal guarantees
Any one of these steps would cause sick patients to lose their coverage and likely leave them unable to purchase an ObamaCare plan. (STLDI plan termination does not trigger an ObamaCare special enrollment period.) We know what happens when restrictions on STLDI plans eliminates these consumer protections, because it happened to Jeanne Balvin. It isn't pretty.
If Biden tries to eliminate standalone renewal guarantees, he may trigger a lawsuit. The Public Health Service Act grants the federal government no authority at all to regulate those novel insurance products.
Additional resources:
Michael F. Cannon, Comments on Short‐​Term, Limited Duration Insurance — CMS-9924‑P, April 2018 (cited in the 2018 final rule)
Michael F. Cannon, "A Chance to Overcome ObamaCare: HHS may soon restore consumer protections for short‐​term plans," Wall Street Journal, May 28, 2018
Michael F. Cannon, Short‐​Term Plans Would Increase Coverage, Protect Conscience Rights & Improve ObamaCare Risk Pools, Cato at Liberty blog, July 2018 (cited in the final rule)
Michael F. Cannon, "ObamaCare is now optional," Washington Examiner, August 01, 2018
Michael F. Cannon, "Californians deserve access to short‐​term health insurance," San Gabriel Valley Tribune, September 2018
Michael F. Cannon, "First, Do No Harm (to ObamaCare): Senate Democrats vote to take away insurance from people with pre‐​existing conditions," Wall Street Journal, October 11, 2018
Michael F. Cannon, "Callous Ideologues: Illinois Legislators Pass Law to Punish Patients with Preexisting Conditions," Cato at Liberty blog, November 2018
Amicus brief by Michael F. Cannon et al., in Association for Community Affiliated Plans v. U.S. Dept. of the Treasury, January 2020
Michael F. Cannon, "In a Win for Consumers, a Court Ruling Affirms the Legality of Short‐​Term Health Insurance Plans," The Hill, July 2020
Michael F. Cannon, "In Which a Lobbyist for Private Insurance Companies Defends Taking Coverage away from the Sick," Cato at Liberty blog, August 4, 2020
Michael F. Cannon, "Obamacare Makes Discrimination against those with Preexisting Conditions Even Worse," Washington Examiner, December 7, 2020
Michael F. Cannon, "Regarding SB199 – Short‐​Term Limited Duration Plans," Testimony before the Committee on Financial Institutions and Insurance, Kansas Senate, March 25, 2021
Michael F. Cannon, "Remarks Regarding Kansas Senate Bill 199 — Short‐​Term Limited Duration Plans," Testimony before the Committee on Insurance and Pensions, Kansas House of Representatives, February 7, 2022

Michael F. Cannon


Pharmaceutical giant Merck is suing Medicare, claiming new drug‐​pricing reforms that Congress enacted in last year's Inflation Reduction Act coerce the company into selling its wares to the program at below‐​market prices. In the Wall Street Journal, attorney Daniel Troy opines that the new rules violate the First and Fifth Amendments. Big, if true.
What's really happening here is that Merck is making tons of money off the taxpayers and wants to keep the gravy train rolling. So the company is offering whatever bad arguments it can to prevent any reductions in its Medicare subsidies.
First, a few preliminaries.
The price Medicare should pay for all medical goods and services is $0.00. Anything that moves the actual price in that direction is a good thing. Some argue that is a recipe for failing to hit the market price. But that gets it exactly backward. Pushing the Medicare price toward $0.00 is the only way to get market prices.
Medicare's administrative prices are government price‐​setting. But they are not coercive price controls. Providers are always free to walk away.
Every single time providers—and especially pharmaceutical companies—complain about Medicare "price controls," it is meritless rent‐​seeking. Because they amount they should be getting from Medicare is $0.00.
Merck argues, to the contrary, that it is not free to walk away. It claims Congress is forcing the company to sell to Medicare at a price to which the company does not consent. If Medicare is truly coercing Merck, that's bad, mkay? But it isn't.
Here's how the IRA's new process for setting Medicare drug prices works.
If Medicare selects a Merck drug for price negotiation, Merck has until October 1 to enter into an "agreement" to negotiate a "maximum fair price." Medicare's opening bid must be at least 25 percent less than the current price.
If Merck does not enter into an "agreement" by October 1, "a noncompliance period would begin" that could result in "excise tax liability" for Merck.
If Merck enters into an "agreement," it must sell the drug to Medicare at whatever price Medicare negotiates/​dictates or pay an "excise tax."
Merck may terminate the "agreement" for any reason, but the termination does not take effect until 11–23 months after Merck announces it. In the meantime, Merck must continue to sell the drug to Medicare at the price Medicare negotiated/​dictated.
Is this actual coercion? Is it a takings in violation of the Fifth Amendment, as Merck alleges? No. Merck is rent-seeking—and hoping its use of the right shibboleths will trick conservative and libertarian legal scholars into rallying to the company's cause.
First, Both Merck and the government are wrong to describe those "excise taxes" as taxes. Merck's own lawyers admit, "the excise tax is suspended if the manufacturer has no relationship with Medicare or Medicaid." Taxes are compulsory; these "taxes" are optional. Ergo, it's not a tax. The correct way to think of those payments is that Merck would be rebating to the government a portion of the subsidies it receives from taxpayers through Medicare and Medicaid. In essence, those rebates are an across‐​the‐​board reduction in the prices Medicare and Medicaid pay for Merck's products. No one is taxing Merck, just reducing their government subsidies.
Since those "excise taxes" are not taxes, the government is not compelling Merck to enter an "agreement." Merck is free to decline. If the resulting rebates Merck must pay mean its government "book of business" is unprofitable, it can walk away from federal health programs.
Not even the 23‐​month period that Merck would have to continue selling the drug to Medicare at the Merck‐​unfriendly price is coercive. Merck has received plenty of notice of that condition. Merck was aware of that provision as Congress debated the law in 2021. And when Congress passed it. And when President Biden signed it in August 2022. And when Medicare announced in March 2023 how it would be implementing these provisions. Merck has had and will continue to have plenty of opportunities to avoid those conditions. It could have avoided them at any time from when Congress began debating them in 2021 until now. It could avoid them today. It could avoid them by refusing to enter into an "agreement." At any of these points, Merck could avoid these conditions of Medicare participation without coercion.
What about the argument that threatening Merck with exclusion from government programs is effectively coercion because Medicare and Medicaid represent a yuge part of Merck's business? We can firmly reject this argument, too.
Is it coercion when people don't want to buy what you're selling at the price you're selling it? Were all those employers who didn't hire you coercing you? Do patients coerce hospitals when they switch to lower‐​price competitors? Then neither is this. Losing business hurts. But it's not coercion.
The fact that people would even think to equate Merck losing government business to coercion shows just how much government dominates health care in the United States. The fact that some people—including many limited‐​government conservatives—would rather let the government overpay than threaten Merck's profit margins is an example of how all that government domination introduces moral hazard into these decisions.
Since no part of this process is coercive, Merck's other claims of coercion (compelled speech, etc.) are also inaccurate.
In case we needed more evidence that Merck is just rent-seeking—that is, attempting to gouge taxpayers—the company describes the prices it currently receives from Medicare as reflecting "fair market value" and Medicare's current drug‐​pricing rules as "a free‐​market approach based on market‐​driven prices." Troy describes what Medicare pays as a "market price."
These are major tells. There are no market prices in the U.S. health sector. What Sherry Glied says of health care prices in general is especially true of Medicare prices: "There is no reason to believe that current prices provide incentives that reflect either underlying costs or consumer preferences." A good rule of thumb is that if an industry claims the price it receives from government reflects fair market value, that price is too high.
It is conceivable, though inadvisable, that federal courts might disagree with me. They may decide to impose notice requirements more stringent than common sense requires. They may choose to define what Congress is doing in this case as coercive. If so, those decisions would mark breathtaking opportunities for special interests to follow in Merck's footsteps by taking advantage of taxpayers.